Car prices have increased significantly, new cars now cost over $47,000, while used cars over $28,000. The majority of car buyers need time to save for a down payment or for the entire car price. Thinking of buying a car soon? Here’s how you can save for your next car in one year.
Set a Budget
The best place to start is with a figure, the sale price, whether you’re paying cash or a down payment. Determine whether you can afford a new car or a used car. Also, decide if you want to lease the car or make a full purchase.
Don’t be vague about your budget, write it down. You can also set a price range. Online resources like a car down payment calculator can help you figure out how much you need to save monthly to raise the down payment or the full car price for a new car like the 2022 Kia Telluride.
Know How Much You Can Afford
A car is one of the most expensive purchases you’ll ever make, average monthly payments have gone up to about $563 in recent years. So even as you save up for the down payment, have the monthly payments in mind. It’s also worth mentioning that the more you pay upfront, the lower your monthly payments will be.
If the car is new, your monthly payments should not exceed 15% of your pay (after taxes). If you’re buying a used car or you’re leasing, work with 10% of your take-home pay. Make sure the monthly payments do not make it hard for you to pay for regular expenses like utilities and housing. Cancel any subscriptions you don’t need and put the extra money in a savings account for the car.
Determine Whether to Buy or Lease
Leasing allows you to use a car for a set time, usually about three years. It’s more common to lease new cars since lease payments are often lower than car loan payments. However, you can still lease a used car. You need to make a down payment for a lease, and as with car financing, the higher your down payment, the lower your monthly payments will be.
Car finance experts advise against making a larger down payment than is required because you could lose it all if the car is totaled in an accident or stolen. At the end of the lease term, you can choose to return the car or buy it.
How to Save More
To build discipline, make your savings deductions automatic. Arrange with your bank, employer, or mutual fund to automatically withdraw a certain amount from your pay and deposit it in your car savings account. You won’t need to remember to save or use the money for something else.
To save more, if you get a bonus at work, a tax refund, or a cash gift on your birthday, put the money in your car savings account. And as soon as you have enough saved up, start shopping for your dream car.