Tips to finding the right car loan for you

30-01-2014 | Dojo |

Most personal finance blogs (this one included) advise you to make sure you save money for most of your needs. Ideally, even a new/user car should be purchased after the money was saved, this would allow you to get the best deals and, of course, stay away from the monthly payments and having debt.

And yet, it doesn’t always work like this. In some cases, saving for a car doesn’t work as fast as we’d like it to, so you’ll have to consider the idea of car loans. In this case, some serious research and preparing for the step properly will save you a lot of money and make the entire process easier.

1. Set yourself a REALISTIC budget

I know you’d like to get a fancy car that’s probably way beyond your budget and yet you’re dreaming about it day and night. Before you go and sign up for the latest craze in the muscle-car category, take a moment to really think about what you can afford.

car loan

A car loan doesn’t mean a gift the bank is giving you, no matter how much or little you borrow, you will have to pay it back. So, instead of getting deep into trouble, set yourself an attainable goal and don’t go overboard. You need to be able to make your monthly payments, even if you lose your job or the wife gets pregnant.

Taking on a huge loan and not setting a budget will put you and your family at huge risk.

2. Think carefully about your needs when it comes to the car of your dreams

Again, dreaming at a cool sports car when you need a family sedan might not be such a great idea. After you have your budget in mind, try to see what’s available for you and choose based on what the car is really for. A family of 5 will probably need a different car from a no-kids couple.

There are many options to have in mind and a lot of possible car brands that would suit your needs. Take the fuel consumption into account, the speed, the space etc. If you do get a car loan, at least make sure the car you have purchased is the best option for you and your family.

3. Can you handle all the costs a car brings?

You’re not just getting a car, so never think about the car price only, because it’s clearly not the case. Your car (new or not) will need insurance. It will need fuel, repairs and maintenance. You will need to keep it clean, maybe even pay taxes on it (in some countries).

Taking on the biggest loan possible (and not budgeting for the other car expenses) will get you deep in trouble. In our case for instance, the car (which is fully paid now) still costs around $200/month (fuel, small maintenance costs, washing, insurance, accessories etc.)

4. Create various payment plans and choose the best option.

There’s always a car loan repayment calculator that would allow you to get a clear view on what your options are. You should be able input the loan amount, the interest rate you expect to get and the time you’d take the loan for. This allows you to find out how much you’ll pay each month and the total of interest you’ll be finally covering with your payments.

Do play around with the calculator, write down the details and then decide on the best solution for you and your family. A big monthly payment will get your loan paid off earlier, but it can put you to risk, if you are not carefully budgeting or something happens. Consequently, a very small payment will not be hard to ‘cover’, but it will take you more time to pay off the loan and the interest will increase.

5. Make an objective decision, there’s no need to get ‘personal’ here

Don’t choose with your heart. Don’t get stuck on a cool car, just because you’ve always dreamed of it, especially if it’s clearly out of your budget and would ruin you financially. Don’t choose a car just because it’s soooo beautiful or has a huge engine (especially if you need a reliable low-consumption car). Don’t go into the first dealership and let yourself be convinced there and then.

Get all your details from the dealerships, make a list of the cars that suit your needs, create your budget, do consider the other car expenses you’ll have and then sit down with your family and run the numbers. Do it carefully, discuss, ask for support.

A car loan is maybe one of the biggest loans you’ll ever take in your life, don’t make rash decisions, because you’ll have to pay for everything eventually.

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