Buying a car is an exciting time! However, getting a new car can be more than many people expect. It’s essential to know the best ways to save money for buying a car before you end up with buyer’s remorse. Let’s take a look at the best ways to save money for buying a new car so that you can feel confident in your purchase.

Best Way to Save Money for Buying a Car

Determine How Much of a Car you can Afford.

A car is not an inexpensive buy. According to Kelley Blue Book, an online reference for automobile assessments, the average cost of a new one is more than $40,000. According to data from Experian, the typical monthly payment on loans for new passenger vehicles was $563 in the fourth quarter of 2020.

It’s a good idea to decide how much money you want to set up for a down payment keeping that large price tag in mind. Many lenders demand a down payment, and the more you can provide, the cheaper your monthly payments and the less interest you’ll pay overall.

Calculate the monthly payment that will fit into your budget while taking into account all of your other ongoing costs, such as housing and utility bills.

Additional Expenses to Consider

Remember to factor in supplemental expenses like motor insurance, which is often paid monthly, every six months, or annually. Find out how much insurance your state needs you to have, then select the coverages and limitations that feel right to you.

Budgeting for vehicle maintenance is also crucial, so find a car with reasonable regular maintenance costs and set aside money in your spending plan for this purpose. Some automakers conveniently incorporate a maintenance visit or several in the cost of a vehicle.

According to the U.S. Energy Information Administration, the national average price of gasoline was $3.14 per gallon as of September 2021. Gasoline can account for a sizable portion of your monthly spending. According to the agency’s prediction, prices would only marginally decrease to around $2.91 per gallon in the last few months of 2021. So while investing in a vehicle with good gas mileage can help you go to the gas station less frequently, it can also help you save money.

Lease or purchase?

When you lease a car, you agree to pay for the privilege of driving it for a predetermined period of time before returning it to the dealer. Leasing has the benefit of maybe requiring minimal upfront cash. Common drawbacks include additional charges if you return the automobile with wear and tear that is above average or if you exceed the annual mileage cap.

When you finance an automobile, you may eventually be able to pay off the loan and drive away with the vehicle. Even though there are no mileage restrictions with financing, monthly payments are frequently greater than with leasing.

The ideal option for you will rely on your tastes and way of living. Leasing may be preferable for persons with limited resources.

Financing is frequently more expensive up front, but it makes more sense if you intend to keep the vehicle once the last payment is paid. Additionally, if you don’t want to bother with mileage restrictions, it makes more sense.

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Create a savings strategy

Although you may have a general savings objective in mind, it’s crucial to give it a specific dollar amount. You can calculate how much cash you’ll need to set aside each month to cover a down payment for a car using Bankrate’s auto down payment calculator.

Once you’ve decided on a figure, make sure you’re setting aside enough cash each month to reach your objective. That can necessitate changing your purchasing patterns, such as stopping subscriptions you don’t need.

Find a wise place to store your money as you stash it away. It may be less enticing to withdraw money from your savings if you open one at a bank or credit union other than where you keep your checking account.

Another choice is to regularly plan automatic transfers from your checking account to your savings account. This choice is offered by the majority of banks, making it easier for you to put some of your income into savings right away.

The best savings accounts currently pay 0.4 percent APY or more. A higher yielding account will hasten the growth of your funds.

Check out prices at several car shops

Window shop, strike up conversations, visit various vehicle stores, and compare costs.

Before settling on the price of your vehicle, it is highly advantageous to visit several auto stores and compare prices. This aids in obtaining a suitable price range and enables you to gauge your negotiating position when necessary.

Once you’ve determined your budget, start looking for the car that’s best for you. The manufacturer’s suggested retail price (MSRP) of a certain vehicle can be found on car-buying websites. Dealer websites can be used to compare costs.

You can finish saving for a car more quickly by selecting one that is more economical. Since a new car quickly loses value, think about a used one. A new car loses around 20% of its value as it leaves the lot, according to AAA. By choosing an older one, you might save thousands in depreciation expenses.

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Determine the vehicle you need

Once you’ve determined your budget, start looking for the car that’s best for you. The manufacturer’s suggested retail price (MSRP) of a certain vehicle can be found on car-buying websites. Dealer websites can be used to compare costs.

You can finish saving for a car more quickly by selecting one that is more economical. Since a new car quickly loses value, think about a used one. A new car loses around 20% of its value as it leaves the lot, according to AAA. By choosing an older one, you might save thousands in depreciation expenses.

Learn how to close a deal

You may approach talks with a salesperson with confidence if you know how much you can spend and have already been preapproved for finance before going to the dealership.

If the salesperson is offering you a price on a vehicle that you believe may be lower based on your research, hold your position during negotiations. Obtaining comparing quotes from several dealerships might allow you to make sure you get the greatest value.

If you negotiate online, you might reduce some of the stress involved. You can reach some dealerships by email or text, while others provide an online chat feature where you may converse with a representative about things like pricing.

Compare auto insurance rates

When Jerry, a company that utilizes artificial intelligence to compare auto insurance, examined more than 1 million driver data points between August 2020 and August 2021, it discovered that the pink tax also applied to auto insurance. The research revealed that “on average, women pay $142 more annually for car ownership than men do, and they may pay up to $7,800 more throughout the course of ownership; they also spend an additional $117.12 on new cars and $22.94 more on auto repairs than men do.”

Although overall car insurance costs were generally lower for women than for males, there were generational variances. In 36 states, women in the Millennial, Gen X, and Baby Boomer generations earn more money than males in the same generation. As a result, even if insurance is an inevitable expense, it is crucial to understand that it is subject to bias.

You should not only compare prices for yourself, but you should also ask your age-group peers in your city to share their rates and the companies they use. You can use transparency as a strategy to bargain for better rates for yourself by using the understanding of comparable rates across demographics. Along with identity-related considerations, take into account coverage summaries, deductibles, and whether the firm provides discounts for completing defensive driving programs.

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FAQs

Is it worth putting a down payment on a car?

Even if the dealership doesn’t ask for a down payment while you’re buying a car, it’s probably best to do so. Although the initial cost will be higher, you could be able to get better financing with a lower interest rate. Additionally, it may enable you to lower your monthly payment and pay off your auto loan more rapidly.

What is the minimum down payment for a car?

Depending on who you’re buying the automobile from, you may need to put down a lower or higher amount. Some car lots might demand a minimum sum, while others might not ask for one at all. In general, 20% down is recommended since it is believed to counteract a new car’s first-year depreciation.

However, since it may reduce your monthly payments and possibly make you eligible for a better interest rate, any down payment is often preferable to none at all.

How much money should you save up for a car down payment?

Calculate 20% of the entire cost of the automobile you wish to buy if you know roughly how much it costs. For instance, a 20% down payment would be $6,000 for a car that costs $30,000. Although 20% down isn’t usually required, it’s a good rule of thumb because it might lower your monthly payments and possibly make you eligible for a cheaper interest rate.

Conclusion

A large purchase like buying a car requires planning. Every step of the procedure, including the ones you do to raise your credit score and choose the kind of automobile you want before making the purchase, is crucial. But the most crucial step might be learning how to save up for a car by setting aside enough cash for the purchase and upkeep of a vehicle.

Keep in mind that your method of saving might not be the same as someone else’s as you go through your spending to determine where you can cut costs for a car. The strategy that reduces costs or increases income is the one that works best for you.

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