A new set of wheels can make you look and feel great. Whether you love a smooth drive or having all the latest gadgets, a shiny car does more than just get you from A to B.
Unfortunately, a great car can also lead to a real dent in your pocket. Whether you have over-financed or selected a car that’s particularly expensive to insure, it is easy for costs to become unsustainable.
Discover the ways to get your spending in check, for a smoother drive into the future.
The 20/4/10 Rule
Because a car is usually the second most valuable possession you’ll own, many of us struggle to cover the price tag up front. This makes car finance an attractive and more affordable way to drive a quality and reliable car.
But, over financing is a common problem, since it can be tempting to stretch your income for a dream set of wheels. The 20/4/10 rule is a useful tool to let you know how much you can really afford.
To drive sustainably, you should always be able to pay a 20% deposit from the word go. This helps you to pay off the car sooner and can reduce the monthly payments. Avoid financing a car for more than four years and always ensure your total driving costs stay below 10% of your gross income.
Are you borrowing smart?
Now you know what you can afford, it is important to shop around for the best rates on finance. Watch out for hidden Hire Purchase interest rate rises, and always read the small print.
It is also worth researching the alternatives to car finance. Besides paying with cash, loans can be the cheapest way to buy a car – and many involve quick and simple applications, so you can use the cash to buy your own car in no time.
Keep insurance costs down
After the cost of your car, insurance is usually the most costly aspect of driving. Many complex factors shape the price you pay – and this means simple differences can have a big impact on your policy.
For instance, adding a named driver with a greater No Claims Bonus can slash your bill by a significant percentage. The job title you use also impacts your insurance. If your role could fall into a number of categories, try each before deciding which to use. Subtle differences can make a huge difference to your annual bill.
There are also more unconventional ways to make savings on car insurance. Top Cash Back can offer cash back when you buy policies with all the big providers, and it could save you as much as £100.
Are you saving enough for potential repairs?
While we don’t want to think about our cars going wrong, especially at the time we buy them, it’s important we budget some savings towards covering the cost of a repair. A short-term loan can be handy if your car goes wrong and you don’t have quite enough cash to pay for repairs. While savings are always preferable in this situation, a loan that can be paid over six months and borrowed without help may work out for you.
Breakdown cover and regular services can reduce the likelihood of a vehicle breakdown and are money well spent, even potentially saving you cash in the future.
Before you buy a car, it is a good idea to take note of typical insurance costs and typical fuel consumption for that model. This way, you can estimate your total driving costs and make sure you always stay in budget.