Would you like to understand the real cost of your next car? Whether you’re buying new or used, it’s helpful to work out your financial position before you sign on the dotted line. From using a car loan calculator to understanding potential running costs – here’s how to calculate the cost of your car.
1. Using a car loan calculator to estimate repayments
This is a great starting point for working out the cost of your next car. Simply enter the amount of money you need to borrow (loan amount) and how long you would like to borrow it for (the duration of the loan). The car loan calculator will then tell you how much you will have to repay in regular installments.
2. Calculating your car loan interest costs
Even if they don’t expressly state your total interest payable, car loan calculators can provide an easy measure for how much interest you will pay over the life of your car loan. Calculate your interest costs by multiplying the repayment amount by the number of payments you will make over the life of the loan. Then simply subtract the original loan amount and you will have the cost of your interest. This is an important factor to consider when adjusting the loan term against loan repayments so you are aware of the total cost of your finance. You are likely to pay less interest by either shortening the loan term, or decreasing the amount borrowed.
3. The up-front cost of your car
Even if you have owned a car before, you may find it helpful to remember there are upfront costs involved in ownership. These include:
Car insurance. This can vary depending on the age and model of your car and your personal risk profile. It’s a good idea to speak to your insurance company and understand what your car insurance will cost.
Warrant of fitness and vehicle licensing. Your car needs to have a current warrant of fitness in order to be considered roadworthy. Take into consideration when the current vehicle license expires so you can plan for this cost in your budget.
4. Running costs
While the car loan calculator will help you to budget for your repayment costs, it’s also important to budget for the cost of running your car. When you work out your monthly budget you should consider the cost of fuel, tyres, maintenance and repair. For example: if your tyres are expected to last 40,000km, and you drive an average of 10,000km per year, then your annual cost of tyre maintenance is ¼ of their up-front purchase price. When it comes to mechanical service, the older your car the higher these costs are likely to be. Fuel is likely to be the highest running cost and will depend a lot on the vehicle type and your usage. City driving typically uses more fuel per kilometer than open road driving. You can obtain full vehicle running cost reports in the AA Motoring section.
Working through your budget in advance should help you to make sure you can afford the car loan you need. By using a car loan calculator you can understand the repayment and interest costs before you apply. Then by getting a good handle on your fixed and running costs you can be confident about whether the cost of your next car suits your budget going forward.