193 Branthaven St, Ottawa, ON K4A0H7
193 Branthaven St, Ottawa, ON K4A0H7
After a home, the biggest purchase in most people’s lives is a car. Car ownership is also intiimately associated with the freedom of the “American Dream”.
But car prices have been rising for decades and saving for a car is trickier than it might once have been. Fortunately, we’ve got a simple process to keep you on track and on four wheels.
There’s no point in overcomplicating things. We’ve got seven simple steps to getting that car and they’re each important if you want to get the best bang for your buck rather than the worst banger for your buck.
We’re going to assume that you’re paying, at least in part, for your car with a credit agreement. That means taking out a loan and according to Experian data the average monthly payment on a car loan in America is nearly $600 a month!
So, you need to work out how much of a repayment you can afford and how much of a deposit that you can raise and this will allow you to calculate the maximum possible value of your car purchase.
We woudl strongly recommend that your car payment is never more than 10-15% of your take home pay each month and if you lease or buy a secondhand car, make it no more than 10%.
Before you go out and spend the maximum amount of money on a car. You need to think about the additional costs associated with running a car. If you have $0 left each month after a car payment? Your car will never leave your drive way.
You need to budget for insurance (and either monthly, bi-annual or annual payments) and that insurance must meet your state’s requirements.
You’re also going to need to pay for regular servicing and maintenance (sometimes this is included in the cost of a car for one or even two years) and to pay for gas. And in the last year, gas has risen in price steeply.
You want to be able to afford to drive whatever you buy.
If you buy a new car, you need to save about 20% of the cost of the car as a downpayment. So, the average car in America costs $40,000 brand new. That’s a deposit of $8,000! You’ll need that before you can get credit to pay for the rest.
For a used car, you may get away with less, we’ve certainly seen finance options that only require a 10% deposit. So, if you intend to spend $20,000, you’re going to need $2,000 on hand to cover that deposit.
Why do down payments matter? They cover the cost of depreciation on the vehicle. When you drive a vehicle off the forecourt, particularly a new one, the value drops. If you have to sell the vehicle to pay the loan? The down payment prevents you from having to find top up cash because the sale price doesn’t cover the full value of the loan.
Leasing is always an option and that means – almost no deposit and regular servicing tends to be included in the daeal. The downsides are that you might be charged a lot of extra fees if you exceed the mileage limit agreed or your “wear and tear” on the vehicle is deemed excessive.
Financing, on the other hand, costs more than leasing, but has no mileage restrictions and you get to keep the vehicle once you pay off the loan.
We recommend that you open a savings account dedicated to the car and then you work out what kind of downpayment that you need.
Divide that by X months (X being the period of saving) and that’s how much you need to save each month to be able to buy that car.
If you can’t afford those payments – firstly, if they’re less than the monthly financing you want, you can’t afford the car. Secondly, you can always trim your expenditure, skip that Starbucks Coffee, quit the gym and exercise at home, etc.
Sadly, interest rates are lousy at the moment – so don’t rely on getting much in the way of interest to boost your savings.
OK! We’re at the point now when you have the money in the bank for that downpayment and you’re ready to go shopping.
Head to the vehicle manufacturer’s website and get a price fo the new car at MSRP – then visit local dealer’s sites and see what kind of deal they’re offering in comparison. That is, if you want to buy new.
We strongly recommend buying pre-owned vehicles. A new vehicle loses 20% in value when you drive it off the lot. Pre-owned vehicles only lose a fraction of that. If you want pre-owned, shop around and find the right deal for you.
Haggling is not just for souvenirs when you go on vacation somewhere exotic. It’s also for when you’re closing a deal on a car.
Use research and facts to back up your position but make sure you don’t overpay for a car and that the dealer or vendor gives you the best financing option too. If you don’t like to haggle face-to-face do it via E-mail or even SMS.
Saving for a car is not easy and it takes dedication but if you follow the steps above, you have a no-stress route to driving off the lot with the least amount of hassle possible.
You might also appreciate our articles on how to save money to buy a house, how to save money on a wedding and ten weird ways to save money.