Getting a car is something that most people think of as one of their goals in life next to getting married or buying a house. This must be one of your goals too. But before you do anything, you should take a moment to plan things out. It is not enough that you know what kind of car you want for you and your family, you should also think about the monthly car finance payments that you are going to deal with for the next few years.

That said, before you glide into one of the car dealerships in your area, you should take a moment and think about what monthly car payment you can afford.

The Ideal Car Monthly Payment

It would be best if you were smart when deciding how much you will spend on your car. The ideal set up would be spending less than 10% of your monthly earnings to pay for your car. This allows you to keep your total car costs below 15% to 20% of your income.

This may sound like you are giving yourself very few car model options. But that’s not entirely true—there is an approach that helps you face your budget with balance and comfort in mind.

Here is what you need to do:

1. Sit down and determine your budget plan.

This may be the oldest trick in the book, but it’s a timeless tip that is applicable through and through. Set aside some time to write down how much you earn in a month, how much you spend on your monthly needs and how much your car payment would be. 

You can use the 50-30-20 rule, which means dividing your income into three spending categories:

  • 50% is for your needs – This includes expenses for your housing, food and transportation. You can put your monthly car payment and related auto expenses here.
  • 30% is for your wants – This includes your entertainment, travel and other nonessential items.
  • 20% is for your savings – This may include your savings for a long term financial goal or paying off credit card debts.

Once you have your car, you would definitely have to put your car loan under the “needs” category. Why? Because a car is considered essential by most people. A car may be helping them hold down a job or transport their children to school. Owning a vehicle is not just all about long road trips or bragging rights. 

The beauty of approaching your car payments with a balanced budget is that it is flexible. For example, if you end up buying an expensive car, you can add a part of your monthly payment under the “wants” category. However, this does mean that you would have to give up some of your actual want, like some of your subscriptions. After all, you need to keep the budget in balance.

For as long as you know how to manage the three categories in your budget, you should be fine. You can spend as little or as big on your car for as long as you stay on track of your budget.

2. Remember that your car finance debt is not your only car expense.

Keep in mind that your car expenses do not stop at its purchase price. You still have other expenses to think about. These expenses include insurance, gas, repairs and maintenance, parking and even tolls. Following the rule of thumb that you should keep your car expenses below 15–20% of your monthly income, then you should plan on spending another 5% on car expenses.

3. Be mindful of your card payment details.

When you are working with a lender, you should be aware of the little details that come with your car loan. You need to pay attention and make sure that you understand what is going on with the lender’s computations. You should check for the following factors:

  • The loan amount
  • The annual percentage rate, or APR, which includes the interest rate
  • The term of the loan

If you are only focusing on the monthly payment, then you may be missing a whole lot of detail that may lead to more expenses. You need to pay attention to your total financing costs when choosing your monthly car payment. It would help if you also kept in mind that the interest rate on your car loan will depend on your credit score and other factors

Generally, lower credit scores result in higher rates compared to better credit scores. So, it is best if you compare different offers so that you can find the most competitive rate on your auto loan.

How to Handle Your Car Finance Payments Like a Pro

As mentioned previously, cars are more of a necessity than a want for some people. That makes car loans a necessary evil in life. Unless you have an extra few hundreds of dollars in your bank account, then it is unlikely for you or for anyone to buy a car without getting some car finance help. 

People don’t really like the sound of “debt”, since this means having to deal with additional costs every month. But you should know that there are ways to avoid getting trapped paying for a car loan forever. You can pay down the loan ahead of schedule or pay more than what is expected so that you can get rid of your monthly payment sooner. Doing these things can help you save money in the form of interest.

Here is how you can handle your car payments like a pro: 

1. Pay more than the minimum expected payment.

This is the simplest way to get rid of your car loan as soon as possible. But of course, only do this if you can. Do not sacrifice your quality of life to be able to do this. By paying more than expected, you can pay off an additional amount of your loan principal. This will help you pay off your loan faster. 

2. Consider making biweekly payments.

Usually, people pay their car loans on a monthly schedule. This means that they will make a total of 12 payments each year. But if you want to pay off your debt faster, you can try making a biweekly payment schedule instead. This means that you will make a half payment every two weeks instead of one full payment each month. This allows you to have some extra payment on your car loan, which in turn can help you pay off your loan sooner.

3. Look out for extra benefits and use them to your advantage.

In case unexpected money comes your way in the form of a bonus, a large tax refund, or an inheritance—make sure that you use them to help pay your car loan. Since it is an amount that is not initially part of your budget, you can use it to reduce your principal without adjusting other areas of your life.

4. Check out your refinancing offers for lower interest rates or shorter loan terms.

Essentially, refinancing actually means taking out a new loan to pay off your existing loan. But before going through this process, you need to make sure that you will benefit in some way or else you are just wasting your time.

There are two ways in which refinancing can assist you in saving money on your existing car loan. The first way is giving you a lower interest rate and second is letting you pay it back over a shorter term. Please take note that this may mean higher monthly repayments, but think about all the money you will save by paying it back faster. 

5. Always read the fine print before agreeing to anything.

As you may now know very well, paying off your loan faster than expected helps you save money through interest. However, paying off your debt too early may have some penalties, as well. This is why you need to check the fine print of your agreement with the lender.

If your agreement mentions anything about prepayment penalties, then you will have to pay a predetermined fee to pay off your debt early. Find out how much the fee is and determine whether it is really worth it to pay off your loan earlier. If the penalty would cost you more than you will save by paying off your debts ahead of schedule, then it does not make sense for you to pay back your loan early.

Bottomline

A car can benefit you in many ways, so if you think you really need it, then go ahead and go get yourself a vehicle. You can hire a car broker in Sydney or the area near you to make sure that you are getting the best deal available. Do not let the repayments for your car loans scare you off. As you have read, there are many ways for you to be able to handle car repayments without breaking a sweat. There are also ways for you to get rid of your loan faster. Make sure to always make informed decisions.

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