What does “afford” mean when it comes to car loans?
Generally, it means having enough surplus income left over each pay cycle to make loan repayments without impacting your lifestyle too much.
For example, if your bank statements how that after paying your bills and covering all living expenses each paycycle, you’re saving some money, lenders (eg. banks) will see this as being able to afford new loan repayments.
Of course, “some money” depends on how much surplus you have each paycycle and how much you plan to borrow. This is where a loan calculator can really come in handy.
Some people use a new car to increase their income
Your own car can boost earning potential.
For example, a tradie who needs to transport heavy tools or someone who wants to work further away from home or where public transport might not reach.
How might a new car change your earning potential for the better?
Top ways to know if you can afford a car loan
Crunch the numbers
Doing an audit on your financial situation can really show exactly where your money is going and importantly, if there are ways you can cut costs.
The easiest way is using a spreadsheet to list all expenses over a paycycle, you might need to check your bank statements for the figures (they can be surprising!).
Hint: don’t forget costs like registration and insurance if you don’t currently own a vehicle.
Get quotes
It’s tough to crunch numbers accurately without knowing exactly what you’ll be up for.
A few quotes can solve this issue, so get in touch with your insurance company for some quick numbers on insuring the vehicles you’re keen on.
Better still, we have the ability to include insurance in car loans for some borrowers.
You can get a quick quote tailored to your circumstances on a car loan here.
Top ways that help people afford a car loan
You might be in a position to (pretty much overnight) cut down on a few things and free income for a car loan. To free up income, someone might:
Cancel unneeded streaming service subscriptions and other memberships
Are you paying for anything that you don’t much? Streaming services and gaming networks can quickly add up so have a look if you can cancel any that you don’t need.
These might also include gym or social club memberships that you rarely use.
Close a credit card by paying it off with a lump sum
Credit card repayments can eat into car loan affordability. If you’re in a position to do so, weigh up closing a credit card as doing so can save a lot of money.
Sell an existing vehicle to reduce rego and insurance costs
Some people like to keep an existing car they own outright even if they rarely use it. Selling a car you rarely use or don’t need anymore can reduce costs and free up parking space.
You might have to show evidence of the above to your broker, but these are pretty useful options for some people.
Other nifty ways of affording a car loan
Refinance (consolidate) existing loans
This means taking out a new loan to pay off multiple smaller loans. This option is worth it if a new loan has a low interest rate and you can free up income with only one scheduled repayment. Refinancing benefits and options are case by case and based on individual circumstances.
Feel free to reach out to our experts to run you through some options on refinancing. There are no obligations to simply find out.
Add spouse income to the application
Do you share expenses with a partner? For example, you might split rent / home loan repayments and bills which can offset your own expenses and make a loan more affordable.
Don’t worry: adding spouse
Income to a loan application doesn’t mean they’ll be responsible for repayments. Usually they’ll just need to provide their payslip / proof of income and something to show they live with you – that’s it. What about cutting down on luxuries?
A few restaurant meals, a night out or a weekend getaway – we all like those little luxuries and we all know that cutting down on them can free up funds. This is a great answer to saving some money and freeing up funds to afford a car loan, but you’ll have to show it in your bank statements.
If you’re thinking about a car loan in the future, cutting back on a few luxuries in the lead up to applying can really make a big difference.
At the end of the day
To really know if you can afford a car loan, your best bet is to look at your own circumstances, needs and wants (in that order). Run some numbers, look at all of your options and then decide what is best for you.
This is where we can help.
We’re able to give you accurate quotes on car loan options matched to your circumstances and give you an idea of any tweaks or changes that might make things even better for you.
