If you’re like many Americans, you may find that auto payments and other auto-related costs can take one of the biggest bites out of one’s budget—in fact, the U.S. Bureau of Labor Statistics recently estimated that the average household spends nearly $10,000 per year to own a vehicle. With this kind of money at stake, it’s important to have a plan in mind when it comes to paying for your next car or truck. Learn more about the mechanics of saving for a new (or new-to-you) vehicle.
When to Start Your Vehicle Savings
Not many people can afford to write a check for the entire cost of a brand-new car. But when it comes to paying for transportation, the larger the down payment you can deposit, the lower your monthly payments going forward will be (and the less interest you’ll pay over the life of the loan). As a result, it’s a good idea to start saving as much as you can, as soon as you can. Autotrader suggests aiming to put at least 20% down on the total cost of a car. That way it keeps the costs of your monthly payment low
And if you’re certain you’ll be taking out a loan to purchase your next vehicle, there’s never been a better time to get a handle on your credit report and credit score. There are a number of different websites, credit card providers, and other resources that can give you free access to your credit score. The higher your credit score, the lower your interest rates, so raising your score even by just a few points could reduce the cost of a new vehicle.
How to Grow Your Savings
One savings method that has met with success from many people is to continue making a vehicle “payment” even after you’ve paid off your auto loan. Because you’re already accustomed to sending this payment to your bank, setting it aside in a separate (and, ideally, tough-to-access) account shouldn’t change your budget and can quickly add up to a hefty down payment.
Keeping these funds in a money-market account or even opening a Certificate of Deposit can also boost the interest rate you earn. Whether you’re planning to purchase soon or are hoping to keep your vehicle running for a few more years, optimizing your interest rates can always boost your savings.
You may also want to look for other ways to earn a few extra dollars a month and make a concerted effort to put these funds toward a new vehicle. Even if you decide to go with a low (or no) down payment, having this money already set aside can defray any repair costs or help you cover months of payments.
Timing is everything
By Labor Day, auto dealerships throughout the country are pressured to move their current-year models to make way for next year’s cars, trucks, and SUVs — most of which become available in early October. By using your time off work to tour local dealerships, you may be able to snag a sweet price (or low-cost financing) for a new-to-you vehicle.
Once you know how much you can afford to spend, including down payments and monthly loan installments, the final element is timing.Just remember that the sooner you want the car — or if your old wheels are unreliable, the sooner you need a car — the faster you’ll have to save up the cash.
Don’t be unrealistic or impatient here. For instance, if you only take home $4,000 a month but need a $5,000 down payment for the car you want and insist on buying that car next week … well, it isn’t going to happen.
Don’t forget about additional expenses
Unfortunately, the initial car purchase is only part of the cost. Gas, parking fees, insurance, and maintenance is part of the package, too. And these expenses are costly!
There are several ways to save money on driving expenses. One of them is carpooling. Just by sharing the drive with one or two people you can save a lot on gas, maintenance costs, and also on wear and tear.
Another benefit is that is carpooling reduces the annual mileage on your car. Not only does this reduce your risk of having accidents, but your insurance company charges you less for your coverage as well.
All you have to do is update your insurance company about the average miles you drive to get additional savings.
Give it a Couple Days Thought
It seems as though everyone is out to get our money. Costs are skyrocketing and more and more products and services are out vying for our attention. Don’t give in on the first day of car shopping, really get to know your options and see which option fits your needs and budget the best.