Transportation is a need. Although buying a car is not the only way to obtain transportation, most people buy new or used cars to satisfy this need. There are three main ways to purchase a vehicle.
Find out how to buy a car (PDF).
Since cars can be expensive, people are looking for loans to buy automobiles. Car loans can be obtained for new and used cars. Leases are another method of obtaining transportation. According to LendingTree.com, auto loans are the third largest category of debt for Americans. These rank just below mortgages and student loans.
How can I save enough to buy a car with cash?
Each month, set aside a specific amount in your budget for a newer car. Determine the cost of the car you want to buy and how much time you need to save for the purchase. This will create a sinking fund for your new car.
Ex: In 36 months, you want to buy a reliable used car for $15,000.
$15,000/36 months = $416.67
In this example, you need to set aside $416.67 in a savings account for the purchase of your car. Use an automatic deposit to a savings account to make saving easier. Seeing the account grow will be an encouragement to work towards your auto savings goal.
What is the average payment for a car?
The average payment for a new car is almost $200 more per month than a used car in 2019 (Experian State of the Automotive Finance Report). In 2022, the average monthly payment for a new car has risen to $644. Paying for your car should be factored into your budget. Experian reports that the average term for car payment loans is just under 72 months (around 6 years). Increasing your down payment on the car or buying a used car can help reduce the monthly payment and the term of the loan. The longer the loan, the more interest you will pay.
Remember that you can change the type of vehicle you drive. Could you save money by selling your new car and buying a cheaper, but safe and reliable used car? Do you live on the peninsula, and can you walk? If so, you could eliminate your car payment, auto insurance, and gas budget line items.
What changes could you make to your transportation to reduce your expenses?
Obtaining a car loan
Why more expensive leases?
Although most leases usually have the lowest monthly payment, you won’t own the car at the end of the term. You have leased the car for the duration of the lease, which is generally 36 months (Experian).
Additionally, you are limited to the number of miles you can drive the vehicle per year. If the mileage is exceeded, you are charged per mile. The Federal Reserve notes that most charges are 10 to 25 cents per mile more.
Review leases carefully and make sure they match your financial goals. That doesn’t mean you shouldn’t have a lease, but you do need to understand the cost of a lease.