Cash vs finance: how to budget for a car

Budgeting for a car

We’ve said it before and we’ll say it again: the great thing about buying a used car is that your budget goes so much further.

However, before you go shopping, you need to be clear what your budget is. This is important both so that you don’t get into difficulties, but also because you might be pleasantly surprised – you might have more spare money than you thought!

How much money do I need?

Used car prices start at around £6,000 – or around £110 a month on finance. We regularly sell vehicles for this amount. If you have £7,000 or £8,000, or around £150 a month, that should give you plenty of choice. Cars like the Ford Fiesta, Ford Ka, Vauxhall ADAM, Vauxhall Corsa, Peugeot 308 and Volkswagen Golf should be easily available within that budget.

No matter what your budget, you should expect to come away with a safe, reliable vehicle that you feel happy with. Walk away from any dealer who makes you feel otherwise. Reputable used car dealers will only offer cars in good condition. All the parts, mechanics and electronics should have been checked to make sure they are working properly and a full vehicle history check should have been done, including an HPI check to ensure there’s no outstanding finance. At Carwise Group, we do this with every car.

Should I buy a car on finance or buy it outright?

If you can’t or don’t want to pay for your car upfront, you have the option of a finance arrangement. There are various types, but all involve a smaller upfront payment than if you were buying the car outright, followed by a series of monthly payments over a set period.

Car finance deals are a form of credit, so you will pay interest, but they can still make financial sense – including for business owners who need to manage their cash flow, particularly if they are running a fleet of vehicles for which the upfront cost would be enormous.

Working out a budget

To work out a monthly budget for a finance arrangement, start with your monthly take-home pay, and deduct all your fixed outgoings: mortgage or rent, bills and travel to work. Then deduct a realistic figure for food, clothes, leisure and anything else, and see what you have left.

The key word is realistic – look at what you really are spending, not what you think you should be spending, or you will end up in difficulty. If your budget looks tight, think about whether there are areas where you can save. Suppose at the moment you buy a takeaway coffee and your lunch each day at work, that might be costing you £4 a day or more – £80 a month – almost enough for a car right there.

Anyone's financial situation can change, so never stretch yours to the limit. If you have £300 spare each month, you don't have to go for a £300 car – you can spend half of that and save the rest.

At Kent and Essex car dealers Carwise Group, we have a wide range of great value used cars for sale – almost all available both outright and on finance. If you'd like to test drive one of them, call 01622 233151 or 01279 216163.