Preparing Your Finances to Buy a Car
Before you rush off to the car dealership, or click through a website to find options for your next vehicle, keep in mind that getting a good deal while buying a car requires careful preparation that could take weeks — or months — to complete.
Do you have a strong credit score, so you can qualify for the lowest interest rate possible on a car loan? Are you doing everything you can to maximize your current car’s trade-in value? How much will it cost to insure your next car? Is it going to cost more to maintain or repair that car if it does become damaged?
Once you’ve taken the time to get a handle on all those important considerations, you can go about a plan to save for a down payment. Here are five steps toward getting it done according to USA Today:
1. Calculate your desired car payment: If you’re taking a loan on a car, of course, you have to make payments. How much can you afford each month? Also consider other expenses related to the car (maintenance, insurance, or any new parts or detailing you’d like to do).
2. Calculate how much you need as a down payment: It’s important to put money down on a car for a number of reasons, including the fact that you can offset depreciation and avoid owing more than the car is worth. A general rule is to put at least 20 percent down on a new car and 10 percent down on a used car.
3. Decide on when you want (or need) the car: This will help you determine how much money to budget each month for savings. If you believe you will need a $6,000 down payment and you want to get your car in a year and a half, simply take $6,000 and divide it by 18 months. You’ll need to save $333 each month until you reach your goal. You’ll need less time if you have money already put away in savings, or if you’re expecting extra cash to come in over the new few months (a salary bonus or tax refund). Saving each month will get you in the mindset to budget money for future car payments.
4. Make savings mandatory: Just as you would for retirement savings, make saving for a car as close to automatic as you can. It should be one of the first things to be set aside from your income, and you can do it by setting up automatic transfers through your financial institution to an account dedicated to saving for a car.
5. Save, but don’t punish yourself: Perhaps you can build some flexibility into your plan. It starts by being realistic with your savings, both with the type of car you can afford (remember all the added costs like insurance and maintenance) and the timeframe you envision for having all your cash in place. You can give up luxuries while you save, but leave room for simple pleasures and reward yourself as you go along.
When it comes time for you to start looking for a vehicle, you can find your next car through RBFCU’s trusted partners.
For more information on the car-buying process, turn to GreenPath, an RBFCU partner for financial wellness counseling and advice.
Information in this article is general in nature and for your consideration, not as financial advice. Please contact your own financial professionals regarding your specific needs before taking any action based upon this information.
For qualified members only. Auto loans are subject to credit review and approval. Some restrictions may apply. For complete details, contact the Consumer Lending Center.