When Time Magazine looked into the many strange ways that people go broke, being financially tied to your car came in at number 29. The example that they used was a man driving a BMW that with a car loan costing him $913 each month. That’s before factoring fuel, insurance and maintenance!
Getting a loan that’s more than you can afford can result in you needing predatory payday loans to meet your weekly needs - and this is to be avoided at all costs.
You don’t want to be the person who ends up losing your lifestyle, or even your home, over expensive car finance.
That's why it’s so important to make sure you get cheap car finance that you can easily afford.
Data from the ABS reveals that the number of car loans in Australia has been steadily increasing especially in the last 6 years.
As car loans become one of the key financial commitments that you’ll have, it’s important to make sure you get cheap car loans that you are totally confident you can afford.
Source: ABS Statistics, Lending Finance 5671.0 12/9/2016
The Australian Financial Review reported in June that late payments on vehicle loans in Australia are currently at their highest since 2010.
So if you’re driving an older car, and considering whether to upgrade, you might be tempted to keep your old model going until it truly bites the dust to avoid the risk of taking on an ongoing financial commitment that other Australians are starting to struggle with.
But how long can you wait?
Read on to find out how long to keep your old wheels going, and how you can avoid the traps of a car loan you can't afford by being smart about finding yourself cheap and affordable car finance.
The key to answering this question is to compare how much your repairs are costing with the cost of a car finance loan.
Use our car loan calculator to work out if you can afford a new car, or even a new-to-you car. Remember to allow for running costs and insurance - with any luck these will be a lot lower on a newer car!
Signs it’s time to replace your old car:
If you’re spending more than 50% of the value of your car in repairs in a year, it’s a sure sign the car is on the way out, and you’ll probably be better off upgrading soon.
Things to watch for here are suspension, brakes, gearbox. Once these wear out you could be risking your safety and that of your passengers. Not ideal.
Save the money you’ll be pouring down the drain your old wheels have become and put it towards a new, more reliable vehicle.
What can you do to ensure that you aren’t one of the people whose car loan becomes a deadweight you can’t afford?
You don’t want to pay any more for your new car than you really have to. Make sure you understand how the car you choose affects your car finance interest rate.
This might mean making sure you have income protection insurance in place, or putting aside a little more than your repayment in savings each week so you have a buffer if anything unexpected does occur.
With pre-approved car finance, you’ve got an exact budget to work to, and you’ve also got a great negotiating tool when you get to the dealer and they try to bundle the car finance and the price of the car together.
Make sure you negotiate the price of the car first, before moving onto finance, and use your pre-approved loan unless the dealer can offer you a lower total loan cost.
Before you shop for a car, make a list of what you need it for. Then chat you someone you trust, or find a good vehicle sourcer, and make sure your new car will be the best at everything you’re going to need it to do, whether it’s fitting in the whole family, carrying your bike, or negotiating off-road tracks.
It’s important to know exactly where you stand with your credit file, especially with the changes to credit reporting that will be rolled out in the next year or so. If there’s any issues at all, find out how you can improve your score, and this will mean that you can get a better interest rate.
Having a deposit means that you’ll never owe more on your car than it’s worth. You’ll save on gap insurance, and if you sell the car, the proceeds can be used to pay out the car loan.
When you settle on the right car and you’ve got yourself a great deal on car finance, you can be confident that you’ve nailed every step of the process and you won’t have any regrets.
To find out more about some cheap car finance options for you, our car finance brokers can perform a quick assessment of your situation and give you an idea of what you can afford to spend on a new car.
Just call 1300 722 210 to speak to someone.
Or you can browse our website to see the options that are available - whether it’s a personal car loan or you’ll use your car for work, we have lots of different options to find you the best possible deals.
We’d love to help you get into an affordable car you’ll love, and we look forward to chatting with you!