Shopping for a new car is exciting. From choosing the make and model you like through to deciding on accessories and design features, finding a new car is serious fun. But financing that purchase might be a different matter.
After a house, a car is likely to be the second highest purchase you ever make. As such, finding the money for that purchase may seem overwhelming, as you’re unlikely to be able to pay via cash up front. That’s where car finance can help. Car finance is a credit agreement that allows you to have full use of the car. You simply pay off via a series of pre-agreed monthly instalments plus interest. There are different kinds of car finance, and the right one for you will depend on your circumstances.
One of the key tools that will help you to determine the kind of car finance you can afford is a car finance calculator, and this article breaks down how to use a car payment calculator in order to calculate the kind of loan you can afford.
How to calculate your car finance
If you’ve started your search for car finance, you may have heard of the 20/4/10 rule. Per this rule, you should use the following parameters to find car finance that works within your means:
- Make a down payment (deposit) of at least 20% of the car’s value
- Choose car finance for a maximum of four years
- Only spend 10% of your gross monthly income on the vehicle
Limiting expenditure on the car to 10% of your gross monthly income is arguably the most important thing to remember. Within this percentage, you also need to accommodate the vehicle’s running costs, like its insurance, maintenance expenses and fuel. This will also vary depending on factors including where you live and your annual mileage, but Nerd Wallet reports that it costs an annual average of over £3000 to run a car in the UK.
Establishing the budget that you have to work with for your car finance is therefore a vital first step. It will differ from your peers depending on the above factors (namely your salary and the running costs you can expect to pay for the car). Without establishing this budget in advance, you won’t have all of the information to know what you can afford, so it’s worth doing so before you use a car payment calculator.
Remember, you can often find car finance deals that will allow you to make smaller payments over longer periods of time, but this does mean you’ll be paying more on interest. This is why putting down a large deposit can have serious advantages, as it will make your monthly repayments smaller.
To calculate the kind of car finance loan you can afford, you’ll also need to know your credit score. You can use Experian’s free credit score checker to get this.
Once you’ve taken stock of your financial situation and set out a budget you can work with, you can use our car finance calculator to get an indication of what you’ll be able to borrow from us via an APR, a monthly repayment figure, total cost of credit and total amount payable.
What’s the APR?
All of the above factors will determine the annual percentage rate of interest (APR) that you’ll pay on your car finance.
You can get an exact APR (also known as a personal APR) by filling in our car finance calculator and choosing the ‘Apply now’ button. From there, you fill in a form which provides us with your personal information and financial history, as well as the kind of deal you’re looking for. We can then give you an APR.
Find out more about car finance today
If you have further questions or concerns about car finance, you can contact My Car Credit on firstname.lastname@example.org. Our friendly team of specialists is on hand to address any queries you have, and will help to find you a finance agreement that works for your unique needs.
Representative APR 10.9%
Evolution Funding Ltd T/A My Car Credit
Require more help?
Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!