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How To Save For A Car
Saving for a car can be a daunting task, especially with recently inflated prices for both new and used vehicles. But nothing is impossible or out of reach if you put your mind to it and buckle down with your finances, including a new (or at least a used) set of wheels. But aside from getting approved for loans, what else can you do to save up for that vehicle you’ve had your eyes on? Continue reading to learn more!
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Why Save for a Car?
Saving for any major investment, such as a car, is a great goal to have and one that teaches you self-discipline in both finances and willpower. But aside from the delayed gratification, why else should you save for a car?
The more funds you set aside for a car, the more money you will have to determine the factors that go into the purchasing of the car, such as the down payment, financing options, maintenance, and so on. The primary purpose of saving for a car is to help pay more on the initial down payment, as the more you apply to the down payment, the less you will pay later on both the principal and in interest. Paying more on the down payment can also help raise your chances of applying for a loan through a bank or credit union.
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Factors to Consider When Choosing a Car
Before you start saving for a car, you have to find what kind of car you intend to save for. Are you looking for a car that’s only purpose is to get you to work, or are you looking at the new model of the brand you always wanted or preferred?
- What qualifies as a new car to you?
Purchasing a certified pre-owned or used vehicle technically makes the car new to you, except that the vehicle already has mileage on it, and could have other issues attached to the car that the dealer or seller might avoid disclosing. Whereas, the newest model has little to no mileage, but will cost you more in the beginning, depending on the type of vehicle it is and the capabilities that the vehicle has. By starting at this point between brand new or used, you will start the process of determining what your future budget will look like.
- What is your lifestyle like?
Think about how often you leave the house, what kind of work you do, and the area you live in. How you live your life should determine the type of car you should be looking at. If you live in an area that gets lots of snow, you might consider a car with all-wheel drive. If you enjoy taking your car off-roading, then you will want a vehicle that is durable and intended to be able to handle that kind of work. If you travel for work, a car with good gas mileage will be a priority to pay attention to.
It can also be helpful to think about who else will be driving the vehicle, such as your kids or friends. If you are sharing this vehicle, then their lifestyles should also play a role in determining what type of vehicle to look at.
- Budgeting maintenance for the vehicle
The last factor to consider when choosing a vehicle to purchase is the additional financing that goes into owning a vehicle. Such costs include fuel and the frequency that you will have to refuel, maintenance and mechanic labor, and car insurance. Depending on where you live, car insurance may be mandatory and will fluctuate in price based on a number of factors, including your age, gender, credit history, and the make and model of your car.
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Starting Points for Saving
The starting point in saving for a car begins with your budget. Once you’ve determined the car that you want to save up for, the next step is to calculate your down payment and compare the financing for your car to your current household budget. To determine your down payment, you need to choose the target amount you have available. If you don’t have an amount in mind, compare the options you are currently considering, then find an average amount through those options. The percentage you will want to set aside for a new car is 20%. For a used vehicle, in most cases, setting aside 10% is the average, but it never hurts to tuck away a bit more.
Other tips for saving for a car include:
- Establish the 50/30/20 budget
This is a well-known budget method that is separated into percentages, 50%, 30%, and 20%. 50% of your income is set aside for needs, including bills, groceries, and gas for your car. 30% is set aside for wants; in the case that you are planning to buy a car, you do not necessarily need then the car would fall under this category. The final 20% is set aside for savings and debt repayments. It is always a wise idea to have savings for your car, as repairs and parts can be expensive.
- Set up a savings account, or a separate savings account
If you don’t have one already, a savings account can help you to stash money away for your car and keeps the money out of sight, out of mind. By transferring savings into a separate account, you add an additional step to access this money, so you will be less tempted to spend this designated money on other expenses. If you already have a savings account for emergencies or other designated purposes, then it might be better if you opened another savings account specifically for any expenses that are car-related.
- Limit unnecessary spending and expenses
Think about how much money you spend on takeout or coffee. Do you have any subscriptions that you don’t use that you could cancel? Little expenses like these can add up and create a hefty bill at the end of each month. You can go as far as to re-evaluate your entire budget and find corners to cut until you save a decent amount for a down payment. Cut a streaming service subscription if you have multiple, even if only for the length of time you intend to save for a car. The “cup of coffee” trick works for many to save up for goal items, where you would save the three or five dollars you would spend on a cup of coffee for that goal item.
- Trade in or sell your current car
If you are not the only person in your household with a car, or are in a location where you can feasible live without a car for about six or so months, then this option might be worth considering. If you were to sell your car privately, you could get more money, but this method can take longer than if you were to take your car to a dealership. Trading your car in could earn you credit and potential discounts with the dealership and is a faster process, but you could get less money than what your car is really worth. Use online trade-in or car value assessment calculators to figure out how much your current car is worth beforehand.
- Pick up an extra shift or ask for a raise
Whether you work part-time or full-time, there might be a potential to earn more money. Picking up an extra shift will lead to additional funds that can be fully applied to your car’s down payment. Even if you are a salary employee, it doesn’t hurt to ask for a small raise, as the extra money will be there even after you purchase your car. If you are self-employed or run your own business, your car could qualify as a deduction as well if you travel for work, and there are several side jobs that you can sign up for that only require a car.
RELATED: Learn How To Save For A House.
Tips on Purchasing a New Car
If you intend on purchasing a new car, then there are tips to keep in mind to help you save money. While it is easier to visit the closest dealership that has the exact model you want, and purchase and finance the car through the dealership, this is the time to slow down and take a moment to think.
- Consider Leasing: If you want a new car every three or so years, and you don’t travel that frequently, then leasing is possibly a better option for you. Leasing a car comes with its’ share of limitations and restrictions, but it can be the better, more affordable option for some, and you might have the opportunity to purchase the car after the lease ends, if you find that you like the car enough.
- Learn How to Negotiate: While it seems intimidating, you can negotiate with the dealership salesman if you come prepared with the necessary financial information. If you already have an idea of what your financing looks like, whether in savings or in loans, then you will have a better idea on what to look for and what to tell the salesman.
- Finalize Financing Options: Don’t take the first options available to you. Instead, compare your finance options, including auto loans through your bank or credit union. The pre-approved offers you will receive will allow you to compare who has the best offer, which then can determine the cheapest way to fund your vehicle, in addition to your savings. These figures will give you the negotiating power for the dealerships, as they will want you to finance the car through them, as the salesmen often receive commissions then.
- Check for Discounts and Time of Purchase: If you are able, time your purchase around the times that most dealerships have their annual sales, including spring sales, fall sales, and end-of-year sales. Some will even have New Year’s sales, and the winter is often when people purchase vehicles less frequently. You might also qualify for various discounts, so make sure to ask the dealership about their current discount offers.
Mistakes to Avoid That Can Save You Money
Making long-term investments have ample opportunity for mistakes and most mistakes are small enough that people don’t think twice about how they could affect how much money they end up spending. Aside from buying a home, buying a car is an investment that has its’ fair share of mistakes. Some of these mistakes include:
- Choosing the Dealership Closest to You: It is worth the time and effort to locate a dealership with the best prices, especially if you already have pre-approved loans through your bank, on top of your savings. Some choose the dealership closest to them because they take the car back to the dealership for maintenance, but you will most likely spend more money by also taking your car back to the dealership for maintenance, as well.
- Going Alone: Do not go to the dealership alone, if you are able. Having a secondary person to test drive with, the talk with the dealership salesman, and so on can help you to negotiate a better price and help you to decide whether the car you are looking at is the best choice for you.
- Letting the Dealership Decide the Financing: Without having an idea as to what you can afford, which is what the bank helps you to determine, the dealership will start off with higher rates than you realize. Remember that most salesman are not only looking at how much you have to spend, but they are looking at the commission they will receive, especially if you are buying a brand-new vehicle.
Parting Thoughts: A Worthy Commitment to Get you Rolling
Saving for a car is a commitment to your finances and willpower. But if you remember to check every avenue of means to save money, do so. At every point in the process of purchasing a vehicle, there are almost always areas to check to save a dollar here and there. As a recap, the more you save in the beginning, the less money you will pay later, and mapping out your financing options as you save money will also help you to determine how much you need to save. Saving money for a car doesn’t need to feel endless or like pulling teeth, it can be easy if you start early and establish a healthy relationship with money and your savings account.
Thanks for reading about how to save for a car.