There are approximately 6 million car accidents in the U.S. each year, but that doesn't stop most Americans from needing a reliable vehicle to get around. Still, purchasing a new or used car can be expensive. Having a down payment saved in advance can help make sure that the process goes more smoothly.
The Importance of a Down Payment
Around 95% of all buyers of houses listed with a real estate agent go through the traditional bank financing process. Many car buyers also require financing from banks or other lenders in order to purchase a car. Since it's rare to have the means to pay for the car's full price outright, you'll probably need to take out a loan. Having a larger down payment saved in advance can help you get a better interest rate on the financing for your vehicle while lowering the dollar amount of your monthly payments.
There are a variety of ways that you can work to save up the money for this down payment, including the following.
Prioritize Your Account Transfers
Once you've done your budgeting and decided how much money you can afford to set aside each week or each month towards a down payment for a vehicle, it's important to pay for those savings before other non-necessities. This means that you pull the money out of your checking account and put it into a savings account before the money can be used for incidental expenses. Paying yourself first is a great way to set money aside, as it makes savings a priority.
Cut Back on Expenses
Another method of saving money is to spend some time evaluating your budget. Is there anywhere in the budget where you can cut back and have more money to put towards a down payment? Even small amounts of money can help, especially if you find small amounts of money from several places and can combine them each paycheck.
Earn Extra Money
Depending on how much you need for your down payment, it may also be necessary to pick up a side gig or second part-time job to earn extra money. This job can be temporary but can help quite a bit as you work to build up the savings that you need. Consider jobs like working from home doing customer service, driving for a rideshare service, or delivering food. These part-time positions can add the extra income that you need so that you can save money quickly.
Budget for Extra Expenses
When establishing a budget for your car purchase, don't forget to factor in maintenance costs, insurance fees, and the potential for out-of-pocket repairs. For instance, windshield cracks greater than 12 inches long often necessitate replacing the glass. While your insurance might cover such an event, you may need to leave wiggle room in your budget in case you don't want to file a claim. Having this money set aside in an automotive emergency account can save you a great deal of stress in the long run. While this won't necessarily apply to your down payment, getting in the habit of setting money aside will be helpful once you actually own the vehicle.
Saving money for a down payment isn't easy, but having a larger down payment can make it far simpler to get the car that you've always wanted. A bigger down payment can mean that you get a lower interest rate and lower monthly payments, even if your credit isn't perfect. This can impact your monthly budget overall, helping make sure that you have more money to spend on other household expenses even after you've purchased your new car.