How to save for a car

By Joe Marczynski

Saving to buy a car made easy! Our helpful guide covers making a plan, figuring out how much to save and setting goals.

Buying a car is likely to be one of the biggest expenses you’ll ever have to commit to. Doing so, however, starts with figuring out how to finance a car. Cars are an investment, so you’re going the need money to invest. However you choose to fund it, having money in the bank will help you get the best deals.

Saving to buy a car is challenging, but it is doable. Here’s how:

Know that you’re doing the right thing

Saving for a car is super smart; after all, it could be one of the most expensive items you ever buy! Even if you are committing to a finance package, having some capital to invest will reduce your debt and save you money long-term. It will also give you stability to handle your first batch of repayments without the stress of relying solely on your job or another source of income.

Set an achievable goal

Saving money is a bit like dieting. If you set an unrealistic goal; “I can save £1,000 a month then I can buy a Lamborghini for Christmas”, you are going to give up quickly, in the same way you’re likely to fall off the Weight Watchers wagon if you plan to lose a stone in a week.

The best way to set a realistic goal is to know what is achievable in the first place! Do your research. Figure out what you want and need from a car, and then learn which cars out there are suitable. Once you’ve taken in some information from your sofa, get down to a local dealership or garage. Just seeing a car in person can sway you one way or another. Take photos, ask questions and if you’re interested in a vehicle, take it out for a test drive.

When it comes to making your shortlist of potential new cars, bear in mind that research shows buying a car that’s just a few years old is better value for money due to how quickly cars can depreciate in value. You can find out more in our car depreciation guide here.

Once you know what you want, you can figure out how much you need to save to make it yours!

Figure out how you’re going to pay

The cheapest way to buy a car is always going to be with cash. Loans and finance packages can give you some financial freedom if you need support, though they often carry additional fees and charges. Cash, however, is upfront, straightforward, and the car is yours straight away. This means you’re not beholden by restrictions that some finance options put on you, like keeping your mileage below a set number.

If you’re looking to take out a finance option, being able to put down a decent deposit will help you save money long-term. Clearly, the more money you borrow, the more money you will pay back in interest, so having the cash to put down up-front can substantially reduce your overall repayments. Don’t forget to research any extra fees or charges that may apply.

Let’s look at an example. If you’re buying a £7,000 car, and you borrow the whole amount over 5 years on 4% APR finance, you will end up paying more than £720 in interest. Borrowing £5,000 in the same circumstances will save you more than £200, but will also reduce your monthly payments, meaning if it’s affordable, you could pay the loan off faster.

Also, don’t presume that a specific finance package will definitely be available to you. This can depend on things like your credit rating; with a low rating reducing the options available to you.

Make a plan

Whether you’re saving for the whole car, or just the deposit, being well-organised will help you reach your goal quicker and reduce any stress. Simply divide the cost of your car by the amount of money you need to put away each month to reach it. If your new car seems too far away, you may have to make adjustments so that you can save more money, or settle for a cheaper option.

When you’re budgeting, don’t forget to keep some extra money in your bank account. If you spend everything you have on the car, you’ll have nothing if you run over a nail on your way out of the forecourt or someone scratches your paintwork the next day. When you set your savings budget, work out how much you’ll need for the payment and then save a little extra for emergencies. Continue to make payments into the account to go towards your road tax, your insurance, your MOT and your annual service.

Keep your eyes on the prize

If you’ve been saving for a few months and still haven’t got your new car, you might feel a little dispirited. Keep your eye on the prize by arranging occasional visits to cars you like and hope to soon buy. It will help keep the car tangible and focus your money-saving efforts.

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