Helping you Budget

What to take into account when budgeting for a new car on finance.

Determining affordability

If you’re buying a new car on finance there are a lot of factors to consider. Knowing what you can afford is crucial, and that can be a complicated picture when there are so many finance products available to you. 

Should you go for Personal Contract Hire (PCH)? Hire Purchase (HP)? Or might a Personal Contract Purchase (PCP) agreement be right for you? You’ll need to do your research, and you’ll definitely need to work out your budget.

But what information do you need to include?

The most important decision to make is how much you can afford to pay each month. When you know that, some of the other decisions you’ll need to make will fall into place more easily.

Choosing the right car finance product also depends on knowing how much you want to put in as a deposit. So how much can you afford to pay up front for your new car?

How many miles will you drive in a year? Your mileage will affect your monthly payment and should also influence your choice of finance product, especially if your mileage is either totally predictable or very unpredictable.

Finally, you should have an idea of how long you want to keep your new car. Some plans don’t give you an option to purchase it outright at the end; some do. PCP is a flexible arrangement that gives you the choice of whether to purchase, hand back or exchange your car at the end of the plan. So, it’s useful to keep the future in mind.

If you have all these details to hand you’ll be able to make the best decision on which finance product to select.

But, when you’re budgeting for a new car, the finance plan you choose is just one part of what you need to consider. It only tells you the cost of owning the car. What about running it?

Over the course of a year with your new car you’ll be paying for fuel and insurance, for car tax, and for servicing and maintenance. Some of this might form part of your finance agreement depending on which product you take out; either way they’ll affect what you can and can’t afford when you choose your new car.

It’s also useful to know how much your car’s value can be expected to depreciate over the course of a year, or the duration of your finance agreement.

Want more detail on the products?

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