Trouble is, most of us are forced to settle for less or buy a car on credit. You may not be able to avoid a car loan entirely, but you can save money toward your next car and keep your costs within your budget.
1. Determine what vehicle you want. Base your next car buying decision on the vehicle you want to buy. Of course, your want may be a Lamborghini Aventador, but your budget a Ford Mustang. Determine what it would cost to buy that Mustang today and then account for price increases if your purchase is a year or two or more away.
For instance, a V-6 powered Mustang may run you about $28,000. In three years, when you’re ready to make a purchase, your price may come in closer to $30,000. Factor in the higher price plus taxes, tags, and related fees. Thus, your final purchase price may come in closer to $33,000.
2. Set aside money regularly. Saving $33,000 in three years may seem daunting and it could be well beyond your means. Still, if you don’t aim for something, you’ll come up with nothing. Find out how much money you can set aside each month toward your goal.
If you can save $1,000 per month, then you’ll have enough money in about three years to realize your goal. Even if your savings are more modest, such as $250 to $300 per month, you’ll have more money available than had you not started a car savings plan earlier.
3. Cut back on other expenses. To reach a goal you may need to cut your expenses elsewhere. You can do that by packing your lunches instead of buying food daily; combining your phone, Internet, and television services; bundling your home and auto insurance policies; the list goes on.
Find ways to cut your costs in different areas and use those savings to fund your car saving account. Open up a separate account at your bank to keep track of your funds.
4. Maintain your current ride. Your current car can be used to as a down payment toward your future ride. You can ensure that its value remains solid by washing and waxing it as well as following the maintenance schedule.
If your car is paid off by the time you are ready to buy a new car, avoid trading it in. Instead, sell it privately. A private party deal can give you more money, funds that can be added to your existing down payment.
5. Estimate your savings. As you save money for a new car, estimate how much money you expect to have when you anticipate making your purchase. For instance, if you know that you can save $250 per month for 36 months, then you will have $9,000 saved by the time that three years are up.
Add in what you make from the used car, for example $5,000, and you’ll have $14,000 to put down. That means you’ll finance about $19,000, with taxes, fees, and licensing included.
6. Familiarize yourself with your lending options. Well before you’re ready to make a purchase decision, shop for car loans. Rates are typically lowest for shorter term loans (36 months) and for people with good credit (740+ credit score). Your bank or a credit union can provide financing. Estimate how much a loan would run you.
For a $19,000, five-year (60 months) loan at 5 percent interest, you’d pay $358.88 per month. If that amount is within your budget, you’re good to go. If not, you’ll either need to come up with more money, buy a cheaper car, or choose a longer term loan.
New Car Considerations
New car shoppers should be mindful that they will pay higher car insurance premiums for a new vehicle. In some states a property tax is also a factor, a cost that is based on the value of the car.
See Also — Employment Length and New Car Loans
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