Have you ever wanted to go somewhere no matter what time of day it is? Or go from one place to another as quickly as possible? If so, a car can allow you to do just that.
(Updated December 21, 2017)
After you get your driver’s license, the next thing you should do is save for a car. Cars can be very expensive, costing tens of thousands of dollars. Saving will make it easier for you to afford your dream car. From the price of the car to ongoing costs, there are many things to consider when saving for your first car.
1. Determine the type of car you want to buy
Knowing the type of car you want to buy will help you determine how much money you need to save. First, figure out why you want a car, as this will tell you what kind of car you need to get. For example, if you just want a car to drive to college, work or the shops, a small car would be your best choice. If you have children, then you will most likely need a bigger car.
As for whether you should buy a new or used car, there are a few things to consider.
Pros of buying a new car:
- Great as status symbol
- Reliable and if anything goes wrong, it is covered under warranty
- There are companies that offer roadside assistance. So it gives you peace of mind in case you get stranded on the highway
Cons of buying a new car:
- New cars depreciate by 25% as soon as you take it out of the garage. Meaning it loses value every second, so if you want to sell your car the next day, you won’t be able to sell it on the same amount you paid for it.
- If you bought it in credit, you will incur a higher debt
- New cars have higher insurance values
- New cars don’t stay new for long.
Pros of buying a used car:
- You can get the best value for your money
- Cheaper, and it won’t burden you so much with debt
- Low mileage used cars are almost practically new.
Cons of buying a used car:
- You might have a fear that the used car has problems that you will have to deal with later. So you will have to do maintenance checks like radiator, breaks, and tires.
- It can be challenging to find a used, reliable car. Especially if you don’t know how to look.
So what should you buy, new or used?
Choosing between new or used car really depends on your current financial situation. As long as you are comfortable with the financing options and you feel that your option can meet your needs, then it’s good. Just make sure to do your research carefully and choose the best one that fits you best.
After you’ve determined the type of car you want to buy, compare prices from dealers, classified ads and other online sources such as CarAdvice. Once you’ve found the best price, start saving up for it!
2. Consider ongoing car costs
You should also consider the costs of owning and maintaining a car. You don’t want to find yourself buying a car and then not having enough money to pay for ongoing costs.
These include car insurance, vehicle registration, stamp duty, driving license, roadside assistance, servicing, repairs, motorway toll charges and petrol. You also have to budget for new car tires every three to five years, as well as a new car battery every three years.
If you’re buying a foreign-designed car, it might need imported parts or special servicing, which can be very expensive. If you want to buy a sports car, which tends to have a high accident rate, repairing it will also be costly.
3. Create a budget and stick to it
Now you know how much money you need to save for your chosen car, the next step is to create a budget and stick to it. Look at your income and expenses and see how much you can save each week. Depending on your income and the price of your car, it might take you 1-3 years to save. In this case, you should also take into account that your car’s price could go up by 2-4% due to inflation by the time you finish saving.
If you’re thinking of saving $6000 in 2 years, you should save $60 a week or $250 a month to reach your goal. If you plan to take out a loan to buy your car, you’ll need at least 20% of the car’s purchase price saved up as down payment.
There are ways you can motivate yourself to keep saving. Try putting up pictures of the car you intend to buy on a wall in your room or on the fridge to remind you of your goal. You could also try saving with a friend and see who can save up and buy a car first. If you have a savings account, check it from time to time to watch your money grow and see the amount of interest you’ve earned.
4. Reduce your spending
You can save up more money for your car by reducing your spending. Don’t buy the latest fashions or the newest gadgets simply because everyone else is – if you don’t need it, don’t buy it. If you want to buy books, get the eBook version, or if you want to buy music, download individual songs instead of the whole album. When it comes to food, make your own meals and eat at home.
It’s important that you compare prices of items between stores and choose the cheapest one you can find. Also consider buying used items or items that are on sale. Most importantly, don’t buy on impulse. Give yourself a week to think about whether you really need the item or not before buying it. In the end, you might find that you’d prefer to save the money for your car.
5. Earn more money
If you don’t have a job, go and get one. If you do have a job, consider getting another job to earn more money. There are many options available to you. For example, you could babysit a friend’s child, take care of someone else’s pet, help family members with household chores, or offer to do work for your neighbors such as yard work.
Moreover, you can hold a garage sale and sell some of your things. Or you could sell your stuff to resale stores, e.g. you can sell your books at a used bookstore or sell your clothes at a consignment store. You can also try putting spare change in a jar and wait until it’s full before depositing the money into your savings account.
6. Open a savings account or term deposit
If you don’t already have a high-interest savings account, open one up. Then deposit money into the account regularly, whether that’s on a weekly, fortnightly or monthly basis. You can also think about opening a term deposit, where you’ll receive a fixed rate of return for a certain period of time, which can be as little as 1 month to as long as 5 years.
Putting away thousands of dollars can earn you a decent amount of interest, which is free money and a great way to save. With a savings account and term deposit, it’ll be harder for you to access your funds, so you’ll be less likely to spend it. Make sure to compare various lenders and to check for fees and other requirements like minimum balances before choosing an account.
7. Choose the right car loan
Only consider getting a car loan if you need a car in the immediate future and you don’t have enough savings to pay for it in full. Remember, you’ll need at least 20% of the car’s purchase price saved up as down payment. The more money you’re able to pay upfront, the less you’ll pay in interest.
You can choose between a secured and an unsecured car loan.
With a secured loan, you’ll need to put up your car as security against the loan. So if you can’t meet your repayments, your lender could sell your car to repay the loan. It’ll also have a lower but fixed interest rate, so you can’t pay off your loan quickly without paying a penalty. A secured loan is usually only offered for new cars.
With an unsecured loan, you don’t have to put up your car as security and it’ll have a higher but variable interest rate. The loan can be offered for used cars.
Also look at various lenders, including financial institutions and car dealerships, and compare their loan terms, conditions, interest rates and fees. If you’re going to make a lump sum payment during the loan term, you can try negotiating a lower interest rate. Choose a car loan that’ll mean you can afford to buy your car and save you money in the long term.
8. Negotiate the price of the car
You can cut down the amount of time you save for your first car by negotiating a lower price. Whether you’re buying from a dealer or a private seller, you can knock hundreds or even thousands of dollars off the price of a used car.
First, look at how many kilometres the car has travelled, its service history and the options equipped. This’ll give you a better feel of the car’s value and you’ll be able to better negotiate the price. If you’re buying a car that’s out of warranty, have a mechanic inspect it to check for any issues. If the car has minor problems, you can negotiate the price down further.
With these tips in hand, you should be able to save up for your first car in the shortest amount of time possible. But the more you’re able to save, the higher quality car you’ll be able to buy. So start saving now and reap the benefits later.
If you need help to manage your debt before you can begin saving, contact the debt help experts at Credit Counsellors Australia. We can help you get back on your feet and ready to buy that new car.