Tips & GuidesCan you afford your car loan?

Can you afford your car loan?

July 28, 2014

If you’re finding it hard to cover your car loan repayments each month, it may be time to re-evaluate your situation. That could include speaking to your lender about refinancing, it could mean refinancing with another lender, or it could mean you simply have to budget better to free up enough cash to cover your repayments.

Evaluate your budget

piggy bank at the bankBefore you think about refinancing your car loan, first look at your spending habits. Create a budget to see how you’re spending your money and what you’re spending it on. Write down your incomings and outgoings for the month and see if there is anywhere you can cut back. You may find that if you cut back on some unnecessary spending, you will have enough to cover your repayments.

Compare the market

If you have cut back as far as possible and you still can’t afford your repayments, compare the market to see what’s available. Use a car loan comparison site to find out how much interest you could be paying, and work out whether switching to a new car loan would be more affordable. Be sure to take into account any fees that may involved in switching to make sure it is still worth your while.

Use a calculator

piggy bank budgetingUsing a car loan calculator to compare car loans will help you compare loans like-for-like, so you can see which one is most affordable. You can also use a calculator to play around with loan options, to find a loan term and a loan repayment schedule that better suits your needs. Just be aware that the advertised interest rate may not be the interest rate you receive if your credit is not that great.

Speak to your lender

Once you have all that information, try speaking to your lender about your options. If you have found a cheaper loan, give your lender that information. If you just want to refinance your loan over a longer loan term, your lender should be able to help you. If you want to pay a lower interest rate, your lender may agree to match a competitor’s loan, or they may not. In which case, you may want to start talking to other lenders.