5 Ways To Save For A New Car In 2021

Want to buy the car you have always dreamt of? If so, do you have the money to pay for it? Cars don’t come cheap. Their cost price is not the only thing you have to give. These are loads of other costs, not counting the yearly maintenance cost.

All this brings us to this: the more you save for it, the less cash crunch you’ll have when buying it. Likewise, the more you save up for it, the less car loan you’ll need. This saves you a lot of loan interest. However, saving requires discipline. 

The steps given in this article shall help you in this journey.

Calculate the down payment

 Choose the amount you’ll have to spend. Once you’ve done this, compare the car with other makes and models to decide whether the price is realistic. Once you have a car you can afford, you have to calculate the down payment. Aim for putting 20% as down payment for the new car, and 10% if it is a second hand car.

The more money you have saved up for this, the more your advantage shall be. Higher down payments qualify you for most loans, and also give lower interest rates and lower EMIs.

When picking lenders, shop and compare the offers from different lenders as well. Don’t just pick the first one that comes across. Apart from the car’s buying price itself, find out how much you’ll have to spend on sales tax and other fees. Thus, you can save up for them as well.

Save and budget for expenses related to your car

We recommend the 50/30/20 budget plan. In this, 50% of your monthly income goes to meeting your needs, 305 of it to meeting wants, and 20% towards debt payments. Now, determining which one is a need and which one is a want can be tricky. However, when it comes to new car upgrades, it can be both a ‘need’ and a ‘want’, although it is ‘want’ slightly more.

Record how much your car payment shall be, and how much the other ongoing costs shall be. That includes car insurance, without which you can’t drive anywhere. These expenses should not be more than 20% of your income. Car insurance premiums depend on factors like age, credit score, and driving record.

Limit unnecessary spending

Buying a car is a major purchase. So, you need to cut down on frivolous expenses, at least for the time being. Stop spending on other Wants gradually and temporarily. This can include groceries, cable connection, and the like. 

Start a savings account

Now you know how much you have to save, and also how to do that. Now you need to find a safe place to park all that money. And that, in other words, means a savings account. Having a savings account discourages you from withdrawing cash on a whim, and thus save all that money for buying your car.

If you have many years to go before you’ve saved up, make sure you park your money in a high interest savings account. You need your money to grow in the meantime. 

Automate savings

Make regular contributions to this savings account. Create automatic transfers to make things easier for yourself. 

So there you have it! Use these tips, and you’ll find your car buying journey easier.