Top Tips on Saving for a Car
A car is hardly a trivial purchase. The vehicle’s price tag is only one part of its cumulative financial burden, and consumers must consider other car-related expenses as well, like insurance, gasoline, repairs, and general maintenance. You can ultimately end up paying an arm and a leg for a new ride once all these expenses are tallied up, even if you got a ‘deal’ when you first purchased it.
But sometimes a car is a necessity. And while its price tag shouldn’t be taken lightly, there’s no reason you can’t find smart ways to save on it. Follow these strategies to start saving for a car now, and you might be surprised by how quickly you can turn your dreams into reality.
Double Check Your Credit Score
If you’re purchasing a car and not planning to pay for it all at once, you may have to apply for financing. This isn’t a major hurdle, but it does require a bit of work to find the best possible terms available to you. You’ll want to start by ensuring that your credit score is up to scratch.
The first step is to check your credit reports, which you can request either by mail or online from Equifax and TransUnion. Once you have them available for review, it’s vital to go over them very carefully and verify every item on each report. It may seem tiresome, but you can easily improve your credit score by several points if you take the time to dispute any incorrect entries. To improve your creditworthiness and raise the likelihood of getting better financing terms, consider credit repair strategies as well.
Determine How Much You Can Afford for a Down Payment
Identifying an appropriate down payment amount is not an arbitrary number, but the result of several factors. The first is your credit score. If your credit is weaker, you’ll be forced to take terms on a loan that are less than ideal, so you’ll want to make sure to borrow as little as you can. In this case, a bigger down payment is recommended. If you’re buying your car new, it’s generally advised to shoot for a higher down payment—at least 20%. A new car becomes used the minute you start driving it, and therefore depreciates in value. If your down payment is too low, you might end up paying much more for the car than its actual value after factoring in the APR.
And you’ll want to shop around for several loans, even if your credit is favorable. While a dealership may try and convince you to handle everything in one place, lenders outside a dealership’s financing arm may have more attractive conditions available (i.e. a lower interest rate).
To figure out how much money you’re working with for the both the down and monthly payments, factor out your monthly debts and essential expenses from your income. How much can you save from that disposable income, and how long do you want to save up before your purchase? The answers to those questions will help you set a ceiling for both a down and monthly car payment.
Do a Little More Math Before You Sign
Even the cheapest cars can quickly rise in price when you factor in all the ancillary payments you have to make beyond the car’s actual price tag. So be sure to do a few more calculations before you sign on the dotted line:
- Calculate your monthly commute expenses. To do this you’ll need to estimate the daily KMs that you expect to clock, determine your vehicle’s fuel efficiency, and determine the approximate cost of a litre of gas in your province.
- Do a little research about the approximate monthly cost of insurance based on the make/model of the car you want to buy, your age/gender, driving record, province you live in and the aforementioned monthly commute.
- Budget a bit each month for maintenance and repairs. It’s recommended to set aside about $100 monthly, but this will vary depending on the car. Ask the car’s dealer about approximate monthly costs of maintenance.
Now, add up all of the above, and you’ll have a good estimate for the amount you’ll pay per month for your vehicle beyond the car payment itself.
Create a Savings Account and Set Up Automated Deposits
It might seem easier to just maintain one bank account for all your banking needs. But if you’re saving for a big purchase, it can get confusing to track what you’ve saved if it’s in the same account that you use for daily expenses. Instead, create a separate savings account to organize your efforts better. The calculations you did earlier should give you a clear idea of how much money you should save each month to reach your goal. You can configure your chequing account to automatically transfer a set amount every month on a specific day.
Use Your Credit Card to Save
Some credit cards, like the Scotiabank GM Visa Infinite card, are designed to help you generate extra money for a car. Purchases made with the card generate GM Rewards points, which can then be applied toward the purchase of a GM vehicle. It’s a 1:1 conversion: $1 dollar of GM earnings reduces the cost of a new GM purchase or lease by $1. The GM credit card offers a high rate of rewards, with 5% accrued on the first $10,000 you spend in a year, and 2% earned from everything else.
Other credit cards can be used to save money on gas each month. The Scotia Momentum Infinite has a 4% cash back rate on gas, one of the highest in Canada.
While it may not happen overnight, saving for a car doesn’t have to take a lifetime. By building a plan and sticking to it, you can kick-start your savings and be ready to purchase your new vehicle in less time than you think. Make sure to take advantage of all the tools available to unearth creative ways to contribute to your objective.