When it comes to saving money to buy a car, it is helpful to remember that the more money you save for a down payment, the lower your monthly payments will be. Figure out how much money you are able to save each month, and compare that to the type of vehicle you are looking to purchase. It is important that you are able to afford however much your monthly payments are. Defaulting on a car loan can result in negative credit marks and having the vehicle repossessed.
The best way to avoid negative experiences like this is to make sure you are saving enough money to put the recommended amount down. Figure out your monthly budget, and establish how much money you can set aside each month. If you know you can afford the estimated monthly expenses of a car loan, but need to save up the money to pay the down payment, you may look into getting a side gig or a short-term second job specifically for that purpose. Otherwise, it may take you longer to save up the 10% or 20% needed.
If you are planning to buy a new car, it is often recommended that your down payment be at least 20% of the total cost of the vehicle you are looking to buy. Not only does this help lower your monthly payments, but it also helps to offset the car’s depreciation. New vehicles depreciate an average of 20% in the first year. Paying that 20% at the time of purchase means you are less likely to end up “upside-down” on the vehicle, where you owe more than the car is valued at.
For a used car, it is typically recommended that you put a minimum of 10% down. Used cars may have already made it past that first big depreciation, so 10% down will help maintain affordable monthly payments. If you are looking to buy a much older car, you may find that it cannot be financed - in that case, you would need to save and pay the full amount in cash. No matter what kind of car you are looking to buy, saving money every month to put towards your purchase will help reduce your overall expenses.
In addition to the total cost of the car, there are several factors that can affect your monthly car expenses. If you are financing a car, most lenders will require you to carry full coverage car insurance on the car for the duration of the auto loan. Depending on the type of car you buy, you may need to pony up the extra money for premium fuel. Higher interest rates, sales taxes, and registration costs can also add unforeseen expenses to the total price of your new or used car.
When researching a car to buy, it is important to be prepared for any and all expenses that may be involved. Research will help ensure that you are buying a car that is within your budget – and give you an idea of how much money you should put away each month to save for the down payment. Talk to your insurance agent to get an idea of what your rates would be with different cars. Talk to your bank or financing company to get an idea of what kind of interest rates and loan terms you would qualify for. If you plan and budget, you may find it easier than expected to save up for your new car.