How to Save Money to Buy a Car: The Ultimate Guide
America’s a nation of car owners. A 2019 survey established that a whopping 93 percent of households own at least one car.
While cars are a key part of the American culture and lifestyle, the cost of ownership has been on a gradual rise. Today, a new car will cost you no less than $38,000, on average.
If you’re anything like the average American, you don’t have the money to make a car purchase in cash. So, you have to save in order to afford the car you want.
Continue reading to learn how to save money to buy a car.
Identify the Car You’d Like to Buy
There’s a car at every price range. Which one will you afford?
If your finances are tight, you certainly aren’t thinking of getting yourself a pricey car. You need something in the range of $38,000 (if going for a new car), or cheaper ($25,000) if you’re going for a used car.
Start by identifying the car you’d like to buy. If you have your mind set on a specific make and model, you just need to establish how much it costs in your local area.
However, if you’re still undecided, it’s not advisable to start saving before you zero in on the car you’d like to buy. It’s important to get advice from someone who understands cars. They’ll be able to assess your lifestyle and recommend the best car for your needs.
How Would You Like to Finance the Car?
This factor will have a big impact on how much you’ll need to save for the car.
You have three options: buy in cash, get an auto loan, or secure dealership financing.
If you’re planning to buy in cash, you have to save up not only the entire cost of the car but also money for additional expenses such as auto insurance. If you’re planning to get an auto loan, you just need to save a deposit amount, which can be anywhere from 5 percent to 30 percent of the cost of the vehicle. Some lenders offer 100% financing, but you still need to save for other costs.
Saving up to buy a car in cash is not an easy task. Unless you’re a high-income earner with the ability to save more than a thousand dollars a month, it’ll take several years before you can fully save for the car you want to buy. By the time you hit the goal, the price of that car will likely have shot up.
Like auto loan financing, dealership financing is also ideal. Instead of working with a bank, credit union, or another type of lender, you get a financing deal from a dealership. They’ll give you the car after you have paid a deposit, and you’ll make monthly payments to them until the car is fully paid off.
If you’re eyeing dealership financing, be sure to do market research and find a good dealer. Focus on finding a brand-specific dealer. For example, if you’re planning to buy a Ford F-150, look around for the best Ford dealership.
Know Other Costs Associated with Owning the Car
A mistake a good number of first-time car buyers make is budgeting only for the purchase price of a car. They forget that there are other after-purchase costs that can significantly increase the cost of owning a car. These costs include car insurance (annual), routine maintenance and repairs, and gas or electricity.
You’re probably thinking that these are negligible costs, but they depend on the kind of car you’ll buy. A luxury car, for instance, is going to cost a lot more to repair than a convenience car.
Similarly, the cost of car insurance will depend on the car you buy. While the average cost is about $1,500 a year, you could end up paying way more than that if you buy a pricey car.
At this point, the assumption is you already know the amount of money you need to save up. What remains is to start doing the actual saving.
Saving is simple, at least in theory. What could be harder than planning to put away some money every month? Only that when it’s time to actually save the money, you realize that you have new priorities or you’ve already spent all your money.
Saving requires discipline. It’s not just enough to resolve to put some money away for a car. Take practical steps.
For example, open a dedicated savings account and automate transfers from your checking account. This way, a set amount of money will be transferred to your savings account every month (or weekly if you set it that way).
Keep an Eye on Your Credit Score
A key part of saving for a car is ensuring your credit score is right, especially if you’re looking to get an auto loan or secure dealership financing.
It’s possible to get an auto loan with bad credit but to be on the safe side, it’s best that you have good credit. In addition to enhancing your chances of being approved for an auto loan, you’ll be charged a friendly interest rate.
So, get a copy of your credit report and see where your credit score is. If it’s good, maintain it. If it’s bad or poor, start rebuilding it.
How to Save Money to Buy a Car Made Easy!
A car is a must-have in today’s life. It offers unapparelled freedom and convenience. However, being a big-ticket item, it doesn’t come cheap. Use this guide on how to save money to buy a car and soon enough you’ll be a proud car owner.
Stay tuned to our blog for more car ownership tips and insights.