Affording A New Car

I don’t own a car, and whenever it rains, I curse to the high heavens about this particular lack of asset. The cost aside, there are some big benefits to car ownership. For instance, you can get somewhere without being subjected to a deluge. You can transport goods without pulling several back muscles. If you are in the market for a new car, or a first car, here are some tips and tricks drawn from the MoneySmart website.

 

What Can You Afford?

A car requires a major expenditure of capital. Beyond the upfront cost of the wheels, you then have major costs associated with rego, insurance, roadside assistance, repairs, tolls and the ghoulish demon, petrol. You’ll need to fully investigate these costs, and be able to budget them into your lifestyle. For instance, will you be able to afford all of this upfront or will you need to borrow a loan to buy your vehicle? And, if that’s the case, what level of repayment can you comfortably absorb into your lifestyle, including the extraneous costs of actually running the thing. Second-hand cars are a fact of life for most of us, so mortgaging your next five years in order to get a brand-spanking new machine should not be a priority.

Choose A Loan

Generally, I’m fairly uncomfortable with personal loans but putting together the capital for a car can be nigh-on impossible so I understand their purpose. According to the MoneySmart website, loans are usually for a term of 12 months to 5 years and are usually fixed rate loans, so the repayment amount will not change over the term of the loan. Should you pay off the loan faster than anticipated you may be required to pay an early termination fee. If you don’t pay of the total amount by the end of the term, you will be required to either pay it as a lump sum or refinance.

Secured Versus Unsecured

Secured loans require an asset, usually the car you’ve bought. Should you default on your repayments, the lender is able to repossess the asset and sell it to regain the borrowed money, without going to court. Usually these are loans that are for newer cars. Remember that cars are a depreciating asset, so if your car resells for a lesser price, you will be required to pay the difference. Unsecured loans are loans without assets as security. Generally you can borrow less and the interest rate may be higher. More usually, these will be for second-hand vehicles.

Other Finance

There are other ways of financing a vehicle. Some dealers can offer finance, though MoneySmart suggests often other lenders will organise better rates for your loan. Research will be key to saving you money here, as it often is. Leasing a car is exactly that- you lease a car for an agreed period of time. Once that time elapses, the car is sold. You can make an offer, but often the car will be sold elsewhere so don’t invest in this unless you have a desire not to own a car in 1, 3 or 5 years time and the lease is convenient.