Car-buying is a huge undertaking, although it doesn’t always seem like it is. You have to research cars, find a car model you like, read reviews, visit a dealership, get financing, negotiate, then finally pay for the car. It can be exhausting. If you’re buying your first car, save for it. Saving up for a new car is better than purchasing a car on credit.
When you have some cash, you don’t need to borrow a lot of money and have more negotiating power. A 25% down payment on a car–or more–attracts favorable rates and terms from any lender. Ready to buy your first car? Here are four smart ways to save money and buy it.
- Work Out the Amount You Can Save Every Month
The first step towards saving for a car is determining the cost of the vehicle you intend to buy. Calculate how much you can afford to save each month based on your monthly income and other financial obligations, such as utility bills, rent, and mortgage. Track all the minor expenses to get an idea of the amount you spend eating out, shopping, buying groceries, and on other things.
After working out how much you spend, check what’s left and determine how much you need to save for the car’s down payment. Also, calculate the monthly payments. Your monthly car payment should not exceed 15% of your net income.
- Calculate the Down Payment
Calculate the down payment once you zero in on the car model and set a budget. According to Loan Center, a company known for auto title loans, you should save enough money so you can put a 20% down payment on a new car (the minimum) or a 10% down payment on a used vehicle.
The higher the amount you can raise for a down payment, the better. A bigger down payment increases your chances of qualifying for an affordable loan. It also attracts lower interest rates, which means you’ll make lower monthly payments. Don’t forget to shop around and compare the terms offered by different lenders the same way you compare car prices and models.
- Cut Down on Unnecessary Expenses
Car-buying is a major investment. It takes discipline and sacrifice to save enough money to buy a car. If your current lifestyle doesn’t allow you to save any money, you should consider cutting down unnecessary expenses or eliminating them completely.
Many people like to make payments using their credit cards, plunging themselves into debt. You can decide to avoid credit cards for a certain period as you save for your car. Pay for your groceries and gas in cash for a few months. Cancel your gym membership if you don’t go to the gym often. Instead, consider jogging in your neighborhood to stay fit.
- Save Automatically
Saving automatically is the best way to do things. Open a savings account with low fees and competitive interest rates and request your bank to transfer a specific amount every payday to the savings account. Automatic transfers make it easier to track your savings and give a clear picture of the milestones you’re achieving.
There are multiple ways to automate your savings. You can direct your bank to do it or use a highly-rated third-party money-saving app. Saving automatically makes it easier to save for large purchases.
