Buy a car (regardless of the model) It is, in addition to a comfortable transport that you can use whenever you want, an investment. The only problem is the price. Think that the acquisition of a vehicle represents spend a large amount of money. What does this mean? That, unfortunately for many, having their own car will not be easy and cheap. Therefore, here we will show you how to save to buy your next car and not hurt so much.
According to the latest reports published by Experian, the average price of a new vehicle in America can easily fetch $32,000. At this point you may think that there is no problem, since you could buy a used car. But it may put you off a bit to learn that the price of this type of vehicle according to the same report is $17,000.
Of course, this does not mean that you should give up your dream of having your own vehicle. All you have to do is prepare, research and organize for the purchase. You can start, for example, by exploring the different models on the market and taking a look at your monthly budget to see how much you could end up paying monthly depending on your source of income.
Once you know how much money you could count on, you’ll know what price range works for you.
Tip: To reduce your monthly financial obligation, this in case you prefer to request a loan, Ideally, you should give the bank a large initial. To get this initial you can save, sell your used vehicle, or opt for a combination of both alternatives. Normally, the idea would be that you can cover 20% of the value of the car -when it is a new model- or 10% in case it is used.
Note: If you prefer to buy a used vehicle, Don’t forget to check the cart history!
Why should you save to buy a car?
The answer may be a bit obvious, but not necessarily. Many people think that since the bank can give them a medium-term loan with a fairly low initial, that would be the best alternative. The negative part of this option is that this would leave you with a monthly payment fee that is too high, which would greatly affect the way you function financially.and.
Think that the more money you can pay down, the less money you will have to borrow from the bank. This, of course, translates into more comfortable installments to pay, that is, more accessible monthly installments.
By having a vehicle loan with such low monthly payments, you could use that leftover money to pay other obligations or invest in something else. Examples of this would be paying your rent or mortgage payment, paying off your last student loan faster, or keeping up with your credit card.
Note: The higher the monthly payments, the more difficult it will be to take action if a financial emergency arises. In other words, if you don’t put down a high enough initial, you could fall behind in paying your installments and lose ownership of the vehicle due to non-payment, for example. Worst? As you suspect, this situation will greatly affect your credit score and your ability to borrow in the future.
If you can pay for the car in cash, great! It would be better to opt for that option instead of asking for a loan from your trusted bank or credit union. In fact, according to a report published by Experian in the first quarter of 2019, approximately 44% of vehicles in the United States are purchased without any type of financing, that is, in cash.
How to save money to buy a car?
If you’ve recently had mechanical problems with your current car and can’t wait to replace it with a newer model, you may not have as much time to spare. The best thing, in this case, would be to see if you can repair your vehicle and buy yourself a little time to prepare yourself, whether it is to acquire a new car or a used model.
But how should you do it? As in any investment, your winning strategy should focus on preparation. If you want to know how to save money to buy a car, here are some tips below:
#1 Set your own budget
It’s hard to gauge how much you can afford to pay for your new vehicle if you haven’t already taken a look at your numbers—that is, your income, debts, and day-to-day expenses. That is why the first advice to be able to save for the purchase of your next vehicle is review your budget and the amount of financial obligations that you usually acquire from month to month. Everything is included here, from paying rent or your mortgage payment to monthly bills, grocery shopping and student loans.
Another tip you should implement is closely monitor expenses so you have an idea of how much money you spend each month in your purchases at the supermarket, on trips to the movies, in restaurants, in the corner cafeteria, etc. It wouldn’t even hurt to see if you can cut back on some expenses, like your gym membership. You could, for example, change to a cheaper Internet plan or temporarily suspend the subscription of Amazon Prime, Netflix, etc.
Tip: Calculate how much money you have left in your budget for the monthly payment of your next car. This will help you determine if you are on the right track or, on the contrary, you need an extra source of income or perhaps cut expenses a little, either to be able to save for the initial or to pay the monthly installments of the loan.
Note: Remember that you should not spend more than 15% of your net income on your monthly vehicle payments.
#2 Start saving automatically
If you don’t have a savings account yet, you might want to open one.. When you’re at the bank, ask for the high yield savings accounts because this type of account works with much more competitive interest rates and, at the same time, is subject to surcharges and lower commissions.
Separating your savings account from your checking account will allow you to keep track of exactly how much money you have for the down payment on your next car. Think that, if you only have a bank account (and it is current), implementing a savings method could be much more difficult for you to do.
Note: When you open your savings account, ask the bank to set up an automatic deduction for you every time you receive money. You can set a specific percentage for it. Thus, each time your employer deposits your payroll money, the bank will automatically set aside a specific amount and transfer it to your savings account.
Doing this could give you a clearer picture of the options available to you in the future and will also help you turn your savings into a kind of “invisible capital”. If you don’t see it, you can’t spend it, right?
#3 Look for a second job or a new source of income
If what you receive for your full-time job is only enough to pay your bills for the month, you might also consider have a side job to save money and buy your car. Don’t just think of a traditional second job. You could, for example, sell a self-manufactured product online, work as a virtual assistant, deliver in your spare time, or walk other people’s dogs.
Earning a little extra money, even if you don’t think so right now, could help you a lot! Among other things (such as offering you the opportunity to treat yourself to some occasional treats) will allow you to save more for the initial of the car, borrow less money from the bank and, consequently, reduce the amount of your monthly installments.
Tip: If you want to know what you can do in your spare time to earn extra money fast and easy, check out these options! You can choose invest a small amount of money or work online. Success!
#4 Reduce your additional expenses
If your current budget doesn’t allow you to save much for a car, analyze how you can reduce expenses or -much better- eliminate them completely. That doesn’t mean you’ll do it permanently, but think it makes sense for you to cut costs, at least temporarily.
Of course, this does not have to completely change your lifestyle. You could, for example, stop using your credit card to make unnecessary purchases; take advantage of discounts, rewards and membership points; pay for fuel in cash; exercise outdoors or temporarily switch to other brands.
Remember that in supermarkets you could find products that are practically the same as those you like, but with one difference: they cost less!
#5 Change or sell your car
Giving your car as part of payment to help finance the model you have in your sights can be a good idea, since it will help you reduce the amount you will have to pay for your next vehicle. To maximize the money you’ll get for your old four-wheeled best friend, compare the offers you get from different dealers.
Note: Be careful about the amount of difference between the price that the dealer will give you for your old car and the one that you will have to pay as a loan! This figure is known as negative net worth and it could be quite dangerous for you, especially if you don’t consider how much you’ll end up paying month to month to be immersed in the excitement of the moment.
In short, how to save money to buy a car
If you have the time -and the resources- to save money for your next vehicle, take advantage of it! Think that paying a high initial on the purchase will allow you to have a smaller and easier money loan to pay month to month. Yes, we know that saving can be a bit frustrating, but that feeling will go away as soon as you start doing it and, of course, when you see the results every time you check your savings account balance.
Our recommendation? To avoid throwing in the towel too early, break your financial goal down into several easy-to-achieve milestones. This simple trick could help you get back behind the wheel before you know it.