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Buying and Selling Cars

How to Save Money to Buy a Car: The Complete Guide

The average car financing loan will run you $32,000 for a new vehicle and $17,000 for a used one.

Buying a car isn’t cheap, and for the vast majority of Americans, it’s an expense they have to plan for. But saying you want to buy another car is easy – saving up for it is a different kettle of fish. It takes grit and sacrifice.

Keep reading for seven essential hacks on how to save money to buy a car you can use to land your next ride.

1. Determine the Budget

The first place to work on getting a car is figuring out how much you can spend. Once you know your budget, other cost-saving and expenditure issues can fall into place.

Take time out to compare the best deal new car rates and how much used cars are going for. You’ll quickly find out if your pre-determined budget is realistic or if it needs altering.

Once you know the target price range you can afford for another car, you can assess the down payment. Ideally, you should not pay more than 10 percent of the total cost on a used vehicle and 20 percent on a new one. Additionally, you should not spend more than 15 percent of your total monthly income on car payments.

The more money you can come up with as a downpayment, the better. You’ll have higher odds of qualifying for a low-interest loan with more affordable monthly payments.

2. Shop Around for Financing

The same way you shop around for car deals should be the approach you take with your financing.

Before you head to the dealer, start the financing application process with several financiers. These should run the gamut between credit unions, banks, and online lenders. You’ll get a better read of the average offer you can expect from the market, which helps you spy out a reasonable deal.

A nifty hack here is to limit your loan shopping to a two-week period. That’s because every time you qualify for a loan, your credit limit goes down, whether you use it or not. Making all your applications within a two-week period will only count as one inquiry, and your score won’t take a bigger downgrade.

Beware that as you talk to financiers, they may want to entice with attractive monthly payment offers. Resist financing that comes with more months attached.

On the surface, it may look like you’re paying less each month. However, you take longer to pay the loan, which equals paying more in total. Consider the entire financing cost as you talk to several lenders to find the best deal.

3. Settle Your Needs vs. Wants List

A top of the line vehicle that’s fully loaded is what anyone would want. However, the extra trim comes at an additional cost. You need to keep your priorities in check if you’re to save up for another car.

Go over your expenses with a fine-tooth comb to uncover potential areas you can cut back on and direct your car budget savings. You can also begin tracking your expenses to figure out if, moving forward, there are things you can do without.

4. Have a Realistic Timeline

Have you ever found yourself deciding to save without a specific timeline only for you to fail to do that? What gets measured gets done, and that goes for your car savings as well. Decide on a timeframe in which you need to save but make it realistic.

An effective way to develop your timeline is to take the total cost of the car you want and multiply it by 20 percent. That gives you an amount to target as a downpayment for your savings.

For example, let’s say your target vehicle is worth $30,000 and 20 percent of that is $6,000. From there, you can look at your budget to determine how long it can take you to save $6,000 realistically.

5. Automate Your Savings

To save effectively, you need sustained enthusiasm. Otherwise, you’ll find after a short while, your targeted savings amount will end up covering other items.

Open a separate savings account where you channel your car savings to avoid mixing the money up with your day-to-day expense funds. That way, you know precisely how much you have saved up at any point for your down payment.

Initiating automatic contributions from your primary checking account is wise, so you don’t divert the amount you’re meant to save. Automating a savings contribution helps build it into your monthly financial habit, making the practice more sustainable.

6. Consider Selling or Trading in

Some dealers offer a trade-in option where they value your vehicle at a particular amount. You then top up the difference between the trade-in value and the price of the car you want to buy. If your vehicle is in decent condition, there can be some savings with a trade-in.

Alternatively, you can put up your current car for sale and use the proceeds to fund your next car purchase in part or in full. There are car sales representatives who can take the hassle of disposing of your car off your hands for a commission.

To get the most, selling your car through a direct sale to a buyer will be your go-to option.

7. Generate Extra Income

Today’s gig economy is useful in helping you get a side hustle that can contribute to your car purchase. If you have a full-time job, you can take some time to pick up a gig or two in your area and earn extra income.

Of course, that means you may need to cut back on recreational time during your saving period to earn money.

How to Save Money to Buy a Car

Buying a car, for the most part, calls for intentionality. You have to be deliberate in practicing how to save money to buy a car so you don’t end up in bad debt or buy a car you can’t maintain. Focus on making financial life changes that can sustainably accommodate car-related expenses in your budget.

Buying a car is the start of your car ownership journey, and you need more information on how to keep your vehicle in prime shape. Our website is a treasure trove of car information you can rely on. Check out more of our content for all you need to know to get the most from your vehicle.