How to work out your budget for a new car?
Careful budgeting is likely to be something that you have done more often lately than you would have ideally liked. After all, we’re only just on our way out of a pandemic that has had constraining effects on how much money many of us have had available to spend on both occasional and everyday expenses. And when it comes to occasional expenses, few are typically bigger than a car.
So, if you’re currently doing the sums and working out what kind of vehicle you might be able to afford as a would-be buyer, how can you be sure of having worked out your budget properly?
Your car budget will depend on a vast range of factors
First of all, and we can’t emphasise this enough… calculating a budget for a car purchase is a more complicated and multi-layered endeavour than you might initially think.
This is partly because, unlike a lot of the purchases you may make in your life, a car isn’t just about the initial buying price, as it also incurs major running costs over the course of ownership.
Such expenses as fuel, insurance, vehicle tax, servicing and repairs will all need to be accounted for, and these won’t necessarily stay consistent over the period that you use the car. A lot will also depend on the age and type of vehicle you choose, and factors like the car’s fuel efficiency.
Playing the percentage game
Then, there’s simply the matter of exactly what you’re buying a car for, and how you intend to use it. Someone who just needs a car as a means of getting to and from work – and nothing more – will probably wish to spend a lot less than someone who is a serious petrolhead and has a very particular (and perhaps relatively distinctive or desirable) model in mind.
As a rough rule of thumb, then, we would suggest that if you are in the market for a straightforward and functional vehicle that you will just be using for commuting and other basic purposes, you might look to budget about 10% to 15% of your annual income.
If, though, you have slightly higher expectations for a new vehicle of yours –such as if you want it to be a bit more comfortable, safer and better-equipped than your average runabout – it might be an idea to aim to spend around 20% to 25% of your annual income.
This leaves the final category of buyer: the concerted ‘car person’ who wishes to use their vehicle for purposes beyond just supermarket shopping or going to and from the office, and who takes particular pride in the vehicle they own. If this describes you, you might be looking at spending more than about 50% of your income on your next car.
There’s no single definite formula for working out a car budget
With the average UK salary at the moment working out as about £31,461 a year according to GQ, most of us have some options and ‘wiggle room’ when it comes to picking a car that also makes sense for our budget. And of course, if you have other major ongoing costs in your life such as a mortgage, university fees or another type of loan, this will further impact on your flexibility to spend.
As a car is likely to be the biggest single purchase you ever make other than a property, it is especially important to be cautious with your budgeting, as it can be so easy to overspend.
If, though, you are struggling to afford a particular vehicle you want when trying to buy outright, it’s worth remembering that dedicated car finance exists! Here at Car Finance Genie, we specialise in helping to make car finance available even to those who may have been turned down by lenders previously. Apply for car finance through us today, and you might be surprised by how much more affordable your ‘ideal’ next vehicle begins to look.