Car cash: How to save for your dream motor

By Rosie Earl
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Trying to save up for a new car? Here are our top tips to get you on your way.

Buying a car is one of the biggest expenses you’ll have to commit to. However you choose to fund it, having money in the bank will help you get the best deals.

When you’re thinking about buying a car, the first decision to make is how to pay for it. You may decide to take out a loan, take out finance, use a credit card, or save up to be a cash buyer. Even if you go down the finance route, having some capital to invest will reduce your debt and save you money long term.

Set a realistic goal

Saving money is a bit like dieting. If you set an unrealistic goal, for example, “I can save £100 a month and I want to buy a Lamborghini by 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. We like to feel successful, and if we feel like we’ve failed, we’d rather give up. SO to help you have the best chance at success, start with some research.

Websites like Autotrader and Confused.com are a great place to start because you can price up the type of vehicle you want from the comfort of your own couch. You can also plan a visit to your local dealership to see what vehicles and finance options are available.

Pro tip: When I’m car shopping, I take photos of everything - the car, any deals relating to it, anything on offer at the dealership - so that I don’t forget any details, and annotate the pictures with the seller’s details or website so I can easily find it again. By organising everything on my phone, I can quickly flick through and remind myself what the best deals were. Need a reminder of where the blue Suzuki with 0% finance was? Look no further!     

 

Finding finance

Once you’ve set your goal, you need to decide the best way to pay. This will depend on: a) how much (if any) money you already have saved up, b) how much the car costs, and c) what finance is available to you.

If you’re taking out a finance option, being able to put down a decent deposit will help to save you money long term. It’s no secret that the more money you borrow, the more money you will pay back in interest, so having cash to put down up front can reduce your overall repayments substantially.

 

What it looks like: For 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, saving you even more.

Plan your journey

Whether you’re saving for the whole thing, or just the deposit, being well organised will help you get to your goal more efficiently. The Money Advice Service has a savings calculator* you can use to work out either when you will reach your goal if you save to a certain budget, or how much you will need to save to hit your goal by a certain date. This will help you to stay on track, and give you a date to work towards for getting your new wheels.

Pro tip: Have a separate savings account for your car that’s away from your normal savings account. This means if you have to dip in for an emergency, such as a busted boiler or an unexpected wedding present, you know that your car money is safe and your buying plans are still on track.

Choose your account wisely

If you’re planning to buy your car in the near future, you may opt for an instant access savings account, but if you’re looking ahead, it may be more beneficial to choose a longer term savings plan with a higher interest rate. Find the best savings accounts for your needs here.

Choose your car wisely too!

You may be dreaming of a brand new motor with single digit miles on the clock, but research shows buying a car that’s a couple of years old is better value for money. Money Saving Expert gives a rundown of just how quickly (and steeply) cars depreciate by comparing its value when new with its average value after three years of ownership or 36,000 miles.

- A Peugeot Ion drops from £33,100 to £5,725, losing 82.7% of its value

- A Citroen C Zero drops from £33,100 to £5,957, losing 81.9% of its value

- A Mitsubishi I-Miev drops from £29,990 to £6,495, losing 78.4% of its value

- An Aixam Crossline GTR drops from £12,370 to £3,500 losing 71.7% of its value

- A Citroen C4 1.6 VTi VTR+ drops from £18,535 to £5,650 losing 69.5% of its value

 

This shows that even waiting three years could get you a good car for much less cash than it costs new.

Don’t blow all your money

When you’re budgeting, don’t forget to plan for some money to be left in your bank account. If you spend it all 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 while you’re picking up your shopping on the way home (true story!)

When you set your savings budget, work out how much you’ll need for the payment, and then save a little extra for emergencies, and continue to make payments into the account to go towards your road tax, your insurance, your MOT or your annual service. And of course, you could always start saving up for your next car.

Top takeaway

- Research how much your new car will cost, and budget how much you will need to save each month to make your dream a reality

- If you’re paying with finance, save up as big a deposit as you can to keep debt costs low

- Reserve some money in your savings account for car emergencies and running costs

How have you got your amazing savings together to buy your dream car? Share your top tips in the comments below.

*As this calculator is an external tool, it is for guidance only, and giffgaff cannot be held responsible for any inaccuracies

Author bio: Rosie is a massive geek who loves anything Hello Kitty or penguin related. She writes every day and wants to be Caitlin Moran when she grows up. If she was an animal, she would be a baby dragon (with a solid background in finance). The Sorting Hat would have put her in Hufflepuff, and she is cool with that.

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Representative example for a loan of £4,000 for 24 months at an interest rate of 15.5% APR fixed. In this example the total amount payable (including interest and fees) would be £4633.57 and your monthly repayments would be £193.07.

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