What Car Finance Can I Afford? A Guide by Forza Finance

When you’re on the lookout for a new car and the best finance to go with it, a quick Google search for ‘what car finance can I afford’ will likely leave you confused. Some say you should aim for 10% of your monthly wage on car finance payments, where others say the value of your vehicle should be less than 35% of your annual income. 

Before pulling out the calculator and trying to navigate a world of numbers, here is what you truly need to know about financing a car based on your budget, according to vehicle finance experts Forza Finance.

Realistic Car Finance Budget

Not making your car finance payments affects your credit score: you should avoid it at all costs. So, to truly assess the available budget you have, you need to look beyond just the vehicle finance monthly payment. You should consider all the running costs involved with having a vehicle (such as road tax, fuel, insurance, among others) when trying to come to a realistic value. 

A larger payment upfront will make your car finance overall more affordable monthly. This initial deposit can range anywhere from 4% to 50% of your vehicle cost, depending on the finance product you opt for. Our expert advice is that you should aim for a 20% deposit, if possible. Take this into account as you build your budget.

With both running costs and possible deposit defined, it’s time to figure out how much your vehicle can cost. It can be tempting to simply see a car you like and call it a day, but you will likely end up with monthly payments you cannot comply with. Start by figuring out your monthly earnings and your average monthly expenses to define your available budget. The more accurate this number is, the easier it will be to find the ideal vehicle for you.

Your car finance monthly payments alone shouldn’t exceed 15% of your available monthly budget. When also considering other running costs, no more than 20% should be spent on your vehicle expenses.  A car finance calculator will help you in assessing a realistic monthly repayment, but as a rule of thumb, if your annual salary is below £25’000 you should aim for a vehicle that is under £150 a month. If your annual earnings come close to £30’000, vehicles that set you back £200 to £250 a month would be appropriate. If per year your pay is above £35,000 you can aim for monthly payments of £300 and upwards.

Car Finance Options

Not all finance packages are built the same and there is a range of vehicle finance solutions out there to answer your own unique needs. The most popular types include Personal Contract Purchase, Hire Purchase and Lease Purchase, also known as balloon payment finance. There are also other car finance products such as personal loans and re-financing.

So, what’s the best car finance option for you?

• Hire Purchase has a low deposit and lower interest rates than most, with fixed monthly payments. The residual value of the car is not considered as you make the payments, unlike other agreements, since after the Hire Purchase agreement ends, the car is yours. 
• Lease-Purchase, also known as Balloon HP, offers lower monthly payments than standard Hire Purchase. It also gives you two options at the end of the agreement: you can choose to pay a final lump sum (the balloon payment) and own the vehicle, or you can opt to upgrade to another car via a second finance agreement.
• Personal Contract Purchase is a low-risk finance option characterised by flexibility and low, fixed monthly payments. The main advantage of this deal is the sheer number of choices you are granted once your agreement ends: you can buy the vehicle outright with the option to re-finance, part-exchange it for another, sell it privately or return the vehicle with nothing more to pay.

If your priority is flexibility or you’re unsure of what you want to do with the vehicle when your agreement finalises, then Personal Contract Purchase should be your first choice when it comes to car finance. 

Want to ensure that a Personal Contract Purchase finance agreement is the ideal option for your budget? Forza Finance’s PCP finance calculator is a free tool to help you determine what your monthly finance payments might be based on the vehicle you want to get, the deposit you can put down and your financial priorities.

Other Aspects To Take Into Account

Insurance can be one of the most expensive parts of car ownership, so make sure you run the numbers for the vehicle you are looking to finance before committing to it. You should also run a soft credit check to find out what interest you can expect and whether you will be able to easily be approved for finance. Forza Finance has put together the answers to some of the most frequently asked car finance questions on their website, feel free to read through them for clarity. 

Do you have any further questions about what car finance you should opt for based on your budget? The team at Forza Finance can help: simply call 01245 950640 to discuss your options.