Saving for a first car is an important milestone in a young person’s life. A car is a major purchase that requires extensive saving, planning, and research. Like all big financial decisions, its important to make a plan and work with people you can trust. Here are some helpful saving tips from our Trusted Advisors that will put first time car buyers on the road to success.
Want personalized financial advice? Contact your local Union Community Bank to set up an appointment to make a savings plan.
Saving for a Car
Planning before you ever get behind the wheel will help ensure a less stressful and fiscally responsible car buying experience.
Start Saving Today
When it comes to buying a car, it is never too early to start saving. If you think you might want to own your own car, start putting aside birthday money and earnings from your first job, part-time work, or internships. It’s important when saving this money that you keep it separate from your every day spending money.
Consider opening a Cash Back savings account and a Cash Back checking account specifically with buying a car in mind. By separating these accounts from your normal checking account and savings, you aren’t tempted to spend that money on something other than the car. You also earn cash back that can help feed your car savings fund. When you use your cash back debit card, the cash you earn back will go into your cash back savings account. This a great way to increase your car savings that also allows you to keep better track of your progress.
Create a Savings Plan
To save for a car, determine how much you can afford by creating a savings goal and plan. Be realistic about the amount of money you can really afford each month.
A savings plan should account for:
- How much money you will earn on a monthly basis
- How long you plan on saving
- Non-car related expenses
- What a monthly car payment would cost
- Your monthly car insurance payment
Once you come up with a figure, save an additional 10-15 percent of that number for inflation, increases in gas or car insurance, and unexpected events. Make a savings schedule – decide how much and how often you want to save.
After you’ve determined how much money you’ll need, start making a monthly or weekly savings plan. For example if you want to save $6,000 in two years, you need to save approximately $250 a month or $60 a week.
If you want a better idea of what a monthly car payment might be so you know how much you need to save, check out our Auto Loan calculator.
When making final decisions about how much you can afford, there are two rules you should follow:
- If you can’t afford to put at least 20 percent down on the car, you’ll probably end up owing more than it’s worth – don’t buy it
- If you can’t pay off the car in 48 months, you’ll end up owing more than the car is worth – don’t buy it
Avoid buying new. You lose money the minute you drive the new car home – cars are depreciating assets, meaning they decrease in value over time. The biggest depreciation takes place in the first two or three years of a car’s life. Buying a two or three year old car will help you avoid losing as much money if you ever sell or trade in that car.
Shop for a Loan Before You Shop for a Car
If you are young, with little or no short credit history, you will need a co-signer; ideally one with a credit score about 680 or higher for the most favorable terms. Get pre-approved for a car loan from a bank or other lenders and don’t rely on the auto company for financing. Union offers loan terms to meet your needs – learn more about Union Auto Loans.
Union Can Help
Whether you’re just starting to save for your first car or ready to secure a loan, the financial experts at Union can help.
Contact your local Union Community Bank to learn how we can help you get on the road.