Purchasing a new vehicle is an exciting opportunity to invest in reliable transportation and flex your consumer buying power. Before you head to the dealership you’ll want to decide how you’re going to pay for your next vehicle. Most people will need to start by saving up funds, and many will need to finance at least part of the purchase with a loan. Luckily, today’s consumers have more savings and loan options than ever before, making the car-shopping process easier and more straightforward.
The road to car ownership is paved by using smart savings strategies, doing a little research, and adopting money-saving habits. Regardless of how you plan to finance your purchase, there are many approaches to building up savings for a new car. You might start with pre-approval for a car loan so you know how much you can afford and how much you’ll need to save.
Continue reading below for tips on budgeting techniques that work, developing good financial habits, and utilizing investment options that can accelerate your savings. Save money now so you can buy a car that fits your lifestyle and budget.
Get Pre-Approval for a Car Loan
While it’s tempting to start the hunt for your next vehicle right away, enlisting the guidance of a savings and loan expert at your financial institution is a wise way to start saving. Speak to someone at your local credit union or bank, and ask about getting pre-approval for a car loan to better inform your budget planning. A pre-approval will provide insight into how much of a loan you’re eligible for, what your potential monthly payments will be, and how much you should save for your down payment. Learning what you can afford can help you set reachable savings goals.
Shop around for rates that meet your needs and your budget. Credit unions often offer lower auto loan interest rates than banks because they are not-for-profit and member-focused. Consider getting pre-approval for car loans from multiple lenders to see which offers you the best deal. (Multiple loan approvals could affect your credit score if the applications occur over a period of time; is there a better way to word this?) You won’t need to choose which one to work with until you’re ready to purchase, but you’ll have all the information you need to make a well-informed decision.
Note: If you do go the route of getting pre-approved for multiple loans, it’s important to apply to all of them within the same two- to six-week period. Multiple loan applications can cause a drop in your credit score, but if submitted within a 14- to 45-day period, credit reporting companies will typically treat all applications as a single inquiry.
Establish a Budget
Establishing a budget is another smart step for building savings. Review your finances to see how much you can afford to set aside each month for your down payment. The recommended down payment amount is 20 percent of the total purchase price, but many lenders will work with less, so set a realistic savings goal that makes sense for your current budget. Keep in mind that the larger your down payment, the lower your monthly payment and interest rate are likely to be. So, when you’re thinking about your budget, you’ll also want to think ahead to after you make the purchase.
Your budget should show you can comfortably afford your new vehicle purchase for the duration of your auto loan. You can estimate your potential car payment amount by getting pre-approval for a car loan or using an auto loan calculator. Ideally, your car payment should be no more than 10 percent of your take-home pay. If the payment amount for your vehicle is more than that, you may need to reevaluate how much vehicle you can afford or how much you’ll need to save for a down payment.
Create New Habits
On average, it takes about two months for people to form new habits. Yet having a specific goal in mind can be a strong incentive to make the necessary changes. As you examine your budget, look for areas where you can trim back on spending. Consider scaling down subscription services and replacing those payments with deposits in a savings account. You can also explore budgeting techniques, like using discounts, couponing, and negotiating lower payments or rates on services you already pay for.
Create a realistic two-month savings plan you can implement immediately. Start with saving a small amount for those first two months, then go over your budget again and see how setting that amount aside for two months impacted your spending habits and your overall budget. Once you’ve hit your first savings goal, set a new savings goal. Continue doing so until you find a comfortable balance between reaching your ideal down payment amount and meeting your monthly budget.
When you’re ready to start saving for a new vehicle purchase, rest assured knowing your savings goals are within reach. You have many options for building your savings and creating a strong financial position before you shop. By adapting to new money-saving habits, getting pre-approval for a car loan, setting realistic savings goals, and speaking with financial experts, you’ll be well on your way to getting behind the wheel of a vehicle you love—and that you can afford.
If you’re in the Hudson Valley, speak to a loan expert at Mid-Hudson Valley Federal Credit Union to learn more about your options for your next car loan.
