A 2015 Business Insider report provided frightening insight into the world of American households. Nearly half of American households do not save money. If you are one of them, you are heading on a dangerous path. Who will take care of your auto loan payments and car-related expenses if you are laid off from work? How will you survive if you are no longer capable of doing a job?
It is important to save money for a secure future. If you are spending all your income without saving a penny, it is necessary to change your ways before buying a car.
Why is it Important to save Money before buying a Car?
You will have to save money for the following reasons:
1. Save Money for Down Payment
The down payment is the total upfront amount that you pay to the dealer. The down payment amount reduces the total cost of the car. It also helps you in manifesting a stable financial position to the lender.
You will have to save money for the down payment because dealers expect you to pay at least 10% of the new car’s value as down payment. The amount of down payment increases if you have bad credit score, low-income or bankruptcy in the past.
2. Save Money for Registration and Insurance
When you buy a car, you will have to buy insurance. Also, you will need to get the car registered with the local DMV office. It involves paying money for title fee, license plate and state taxes.
If you are apprehensive about the entire registration process, you can ask your dealer to finish the process on your behalf. Although, remember that the dealer can charge you extra for the service provided by him.
To know the exact amount of money that you will be required to save for registration and insurance, you must contact the local DMV office of your area.
3. Save Money for Maintenance
Car-related expenses are not limited to monthly payments and fuel. Every car requires maintenance on a regular basis and you will be required to keep aside money for the following things:
>> Oil change
>> Fuel filter replacement
>> Tire replacement
>> Brake repairs
>> Battery replacement
>> Locks, latches and hinges lubrication, etc.
The amount of maintenance fund varies from one car to another. Also, it is important to consider the general wear and tear of your car to calculate an accurate amount for maintenance.
4. Save Money for Emergency Fund
It is a fund that is set aside to be used in times of emergency. The purpose of the emergency fund is to provide financial security in times of job loss, serious illness, etc. Creating an emergency fund will help you in staying on top of your auto loan payments. It will enable you to make regular payments and avoid any negative effect on your credit score.
Financial planners recommend keeping aside an amount equivalent to at least three months of your income as emergency fund.
Buying a car is huge financial responsibility and so, it is important that you prepare yourself for it. Keeping aside money for a car will give you peace of mind. If you go for an auto loan without saving money, you will be risking your financial stability as well as your credit score.