With new cars costing over $47,000 on regular and used cars averaging over $28,000, only a few people can just walk into the dealership, write a check, and drive away. Most of us need to avoid wasting money first, both for the full value of the purchase or, if we are financing the car, for a down payment. Below are some steps to follow when saving for your next car.
Key points to remember
- The amount of money you may want to avoid wasting will depend on whether or not you pay money for the automobile, make a down payment on an automobile mortgage, or lease the car.
- Making a higher down payment will cost you more upfront, but lower your monthly prices.
- To stay tuned, consider setting up a separate account to avoid wasting on a car.
Set a financial savings goal
Once you’re saving for a major purchase, it helps to set a concrete goal. When considering paying money for a car, your goal should be gross sales value, including taxes and fees. When considering financing, you may want to save for a down payment. The price you pay and how much you want to save up front will depend on many factors, such as whether the vehicle is new or used and whether or not you offer to buy or lease it.
Buy new or used
When you plan to buy a new car, you will need to save at least enough money for a down payment. Traditionally, a 20% down payment was the norm, but today many sellers and lenders will settle for much less. Some producers and sellers also offer 0% financing promotions from time to time. Typical down payment fees in 2019 were 11.7% and 10.9% for used vehicles, according to automotive website Edmunds.
In fact, the less money you put aside, the more money you will have to borrow, plus the interest.
The same goes for financing a used car. One difference is that if you shop from a personal provider, you may almost have to pay money. However, you may also have the option of obtaining a private mortgage from a financial institution or other lender in case you are unable to provide the full amount on your own.
Shopping versus renting
You can rent both a new car or a used car, although renting is more common with new cars. Leasing funds are generally inferior to auto mortgage funds because you don’t actually own the car, but just pay to use it for a certain amount of time.
Leasing also requires a down payment, commonly known as a capitalized price discount, in many situations. It can vary from $0 to several thousand dollars. Like financing a car, the less you put aside, the higher your monthly funds. However, many specialists advise not to invest more than you are required to, partly because you could lose all that money if your leased vehicle is stolen or destroyed in an accident.
Leases usually last around three years, at the end of which you can either return the car to the seller or buy it at an agreed price. When you’re considering buying it or leasing another car, you might want to avoid wasting money on the purchase price or another down payment.
If you have a Trade-in
When you have a car to trade in for your new car, it can reduce the amount of money you need to hand over to the office. Typically, you can get less for your trade-in from a seller and more if you sell it yourself. However, promoting it yourself also takes more work and more time. To get an idea of your trade-in price, seek advice from a web-based information source, such as the Kelley Blue Guide at KBB.com.
Different prices you might want to save for
Once you’ve purchased a car, especially if you don’t currently have one, you may have to deal with additional prices that you’ll want to finance for. These include:
Registration and state license. When you buy from a supplier, these can also be rolled into the gross sales value. When you buy from a person, you may have to pay for them individually.
Car insurance coverage. Almost every state requires drivers to carry at least a certain amount of auto insurance protection, and it’s usually a good idea to buy more than the minimum if you have other property to protect from a lawsuit.
On a regular basis work prices. These will include gas (petrol or electric, depending on the car), routine maintenance, and periodic inspections in case your condition requires them.
In most states, you want to have auto insurance for driving on public roads, so plan to buy coverage before or the day you buy your automobile in case you don’t already have one. Sellers will usually require proof of insurance before they let you and your car go.
Some suggestions for saving
- Start a dedicated automotive account. To avoid the temptation to spend your auto savings on different functions, it helps to set up a separate auto savings account. Some good choices may be a financial savings account with your financial institution or a money market mutual fund. With these two, you won’t threaten to lose money and you might even earn some interest.
- Make it automated. Be prepared with your financial institution, mutual fund, or employer to typically withdraw a specific amount from your paycheck and deposit it into your auto account. This way, you won’t have to think about it or have the opportunity to spend money on anything else.
- Contribute any spare money. When you get a work bonus, a stimulus check from the authorities, a tax refund and even money on your birthday, add it to your car account.
And finally, even if you’ve saved enough money and bought your car, it’s not too early to start saving for the next one.