When thinking of buying a car, there’re different factors to consider. If you’re buying a new car, then you’ll need to save around 20% of the total amount for the down payment. On the other hand, a used car will be much cheaper. Also, remember the kind of financing you’re willing to do, including cash, credit card, personal loan, or car finance. Depending on your salary, saving power, and monthly expenses, the time needed to purchase a vehicle might differ. When saving for a car, cut unnecessary costs, fix a certain saving amount, pick up side hustles, and save all the cash you get from anywhere.
Investing in a new car is most people’s goal in their adult life. While few people can walk into a showroom and book a new car, most people have to set a goal of saving money for it for years.
Multiple factors come into play when saving up money for a car. You also have to consider which payment option is financially suitable.
You might need to wait a bit, but getting your vehicle is the best feeling in the world. Let’s take a look at how you can achieve this goal!
What are the different ways to pay for a car?
Initially, saving up for years might sound tedious when you find a car you like and have set your eyes on owning one day.
But there are different ways you can own a car and pay for it in a way that suits you.
Car Finance
One of the options to invest in a car is using the car finance method, which has become quite popular lately, with almost 93% of new car owners opting for it.
Be it a new or used one, the loan is secured against the car under this method. You won’t own the vehicle while you’re making repayments.
This method allows a person to pay in installments, which some find easier. But the interest is applied on loan, and the finance provider might set mileage restrictions and other conditions you’ll have to oblige.
In most ways, you’ll have to pay an initial deposit and agree to a set term during which you make monthly payments towards the car, but there are different ways to do so.
Personal loan
When you have decided on which car to buy and its specific model, you can compare different personal loans and their interest rate to see which one suits your needs.
A person makes repayments monthly for a fixed period. Remember, the shorter the term you request, the larger the repayments will be, but the less interest you will pay overall.
This method suits people who want to own their car without waiting. The interest rate will be decided on your credit score, so you can access the most competitive rates if you have a good credit score.
Credit card
You can use your credit card to either make the whole payment together or make the deposit. But you’ll have to clear the balance before your due date or will have to pay interest.
It also depends; some car dealerships accept credit cards, and some don’t.
It could be because every time a dealer accepts a credit card payment, they have to pay a processing fee which typically ranges from about 1% to 3.5% of the transaction amount.
Pay attention to your credit card limit. It would be best if you didn’t go closer to the card’s limit as it will increase your credit utilization ratio, negatively impacting your credit score.
Cash
Paying in cash is the most straightforward way to pay for a car and the most uncomplicated one.
There’s no need to pay any interest or further complicate the matter. Once you hand in the cash, the car is yours to own without any strings attached.
To make this arrangement, you need to know how to save enough money in your savings account.
Remember, you should have emergency savings after paying, so calculate the amount accordingly.
Factors to consider before buying a car
Different people have different choices for cars they wish to buy. The first thing that matters is which brand and model of the car you want to buy.
Get to know the price for that particular model and then set a goal for savings.
Further, there are multiple factors you should take into consideration, such as:
Buying a new or a used car
Some people want a brand-new car, but others feel comfortable with a used one and don’t want to spend much money on a new one.
It’s a personal choice, but a used car will cost you less. However, at this point, you need to make a pro and con list apart from the issue of money.
A new car would come with the latest updates, is reliable but costly, and requires higher insurance costs.
A used car will be cheaper because the high depreciation of their early years is behind them, so that you wouldn’t require as much insurance coverage.
Think about other factors such as maintenance of the car, repairs required, gas, and insurance.
Trade in the old car
If you have an old car that you could trade in, that would further reduce your payment.
Instead of getting cash against it or re-selling it yourself, it’s better to trade it for a new car, which is a better deal.
How to save for a car?
If you’re buying a new car, you’ll need financing for the down payment, which comes to around 20% of the total amount to be paid.
Also, remember things like dealer fees, taxes, delivery fees, and other such costs.
When setting a savings plan for a car, consider your salary and how much you can save.
Depending on how urgently you need a car, you must make compromises for the next couple of years and save through different means.
Cut down on unnecessary spending
Take a deep look at your spending habits and see where you can cut costs and switch up things to save money.
For example, you can spend time at home instead of going out every weekend.
You can switch your option of buying your lunch outside to packing your lunch by yourself.
Even if things like these might seem small, they add up to a lot of savings, so make sure you cut out excess expenses and turn things around by saving up as much money as possible.
Fix a certain saving amount
Instead of saving whatever money is left by the end of the month, separate your desired amount in the beginning when you get paid into a separate account, so you aren’t tempted to spend it.
If you don’t know your monthly expenditure, then first make a list of your expenses. Planning a monthly budget will let you know how much you can keep aside each month for an extended period of time.
Fix a certain amount and keep saving that particular amount. Don’t do things like saving $100 one month and then $200 the next month.
Side hustles
If there’s a chance, you can hustle on the side by picking up a few freelancing projects that can make you achieve your goal faster.
Try to look for jobs that can earn you some extra cash.
While saving from your monthly check is all good, if you can’t wait for your new car and have some time on your hands after your job, it’s a good idea to follow up on this.
Save up all the extra cash
If you get cash from somewhere, be it your parents or a bonus from work and even a tax refund, then all of it can be put towards buying yourself a car.
While it might seem like a nice idea to treat yourself, and you should go once in a while, don’t make a habit or routine out of it.
Of course, if you’ve worked extra hard and got a bonus, you could get a meal with your friend and then put the rest towards your savings.
FAQs
Should you lease a car or buy it?
It depends on your personal choice, finances, and current car needs. With a leased car, there are various restrictions, such as how many miles you can drive or modifications you can make to the car.
However, buying a car means saving a lot of money for a long period. If there’s an urgent need to get a car, you can always lease it, but from a long-term point of view, it’s better to save money and own a car.
How to save for a car as a teenager?
Getting a part-time job at a place where you get paid a little over the minimum wage is an excellent sign to save up for a car.
See how much you can save from the part-time job you’re doing. Setting goals is essential so you can see how much effort you need to put into it.
To summarise
When buying a car, a bunch of factors must be considered. It depends on what kind of car and model you want and if you’re willing to buy a used car or need a new car.
Saving up for anything isn’t easy, and you might be tempted to spend it on yourself in the short term but then make some strict rules for yourself so the savings goals can be achieved.
