How do I save money for a car?

Buying your first car is an exciting venture that gets you one step closer to practicing safe driving skills and having more freedom on the road. If you've recently got your learner's permit, it's time to start putting money towards your new car. To learn more about how to save for a car and save on your first car insurance policy, keep reading!

Step-by-step guide to successfully planning your car purchase

Buying a car takes some planning. But, if you follow this step by step guide, you'll be well on your way:

1. Establish a budget for your new car and choose how you'll pay

Before purchasing a car, you'll first need to come up with a budget or saving goal. To calculate this, take a look at the type of car you want to purchase, your monthly income, how much money you currently have in your savings accounts, how long you intend to save money, and any additional costs you will have to pay including, car insurance premiums, maintenance costs, sales tax, and other transportation costs. After setting your budget, consider the following:

New car vs. used car

Once your budget is established, you'll need to decide whether or not you want to purchase a new car or used one. New ones, of course, will cost you more money than a used car purchase. If you decide to purchase a new car, you have the option of purchasing the car outright, or taking out car loan payments.

Car loan payments

With a car loan, you'll have to make monthly loan payments to a bank or credit company. So, think about whether you're able to afford this monthly payment on top of our other expenses to determine whether this course of action is a good idea for you financially.

Remember that taking out a loan means there will be loan terms and interest charges, meaning you'll end up paying more for your car ownership over time, given that your bank or credit union will need to make money off of your loan.

Minimal monthly payments

In contrast, if you purchase a used car outright, you won't have to make a monthly car payment. This will give you more money at the end of the month for other car expenses.

Leased car with down payment and ongoing monthly payments

Lastly, if you don't want to buy a car or take out a loan, you also have the option to lease a vehicle from a dealership. When you lease a vehicle, you'll have the opportunity to drive a newer model, without having to take out a auto loan or dip into your savings account.

With a lease, you'll need to make a down payment upfront in order to lease the vehicle. Once the down payment amount has been paid, you'll need to make monthly car payments to your dealership, similarly to how you would pay a monthly loan payment. After a certain amount of time, you can trade in your leased vehicle and get a new model.

2. Set up a savings account just for your vehicle purchase

Now that you have a budget established, and you've chosen how to actually purchase your car, you can now start working toward your savings goal. We recommend opening up a high interest savings account just for your car savings. These savings accounts have higher interest rates which means you can grow your money quicker than a regular savings account.

Aim to set up automatic transfers from your checking account directly to your savings account each month. This will ensure that you're able to save money and work toward your savings goal without having to manually transfer money yourself. Call it something fun like a car account and watch your monthly savings goal grow over time!

3. Consider a side gig

If you have extra time in your schedule, consider getting a side gig to help expedite your savings goals. Buying a car isn't cheap, so any extra money you can make on the side can help your dream of becoming a car owner come true quicker. It can also help you save for future repair costs, gas, put more money into your car savings fund, and put money toward your debt balances if you need to.

4. Work on your credit scores

If you're aiming to buy a car with a loan, you'll need to work on your credit score. Credit companies will take into account your credit score when determining your monthly payment for your auto loan. A poor credit score will lead to a higher interest rate, which means you'll end up having to pay more each month for your car and overall once the loan period has ended.

Make sure you're making your credit card payments on time and avoid putting more debt onto your cards, reconsider your monthly budget, and cut down on monthly expenses that add additional costs on your credit cards for the time being.

5. Trade in or sell your current vehicle

If you plan on buying a car and already have a vehicle, consider selling your current one or trade it in to your dealership. This can help you put a large down payment on your new vehicle, which will help you lower your interest rate if you're taking out a loan.

6. Learn how to negotiate vehicle purchases

Lastly, when you buy a car, don't be afraid to negotiate the car price. Whether you're buying the vehicle privately or from a dealership, if you believe that the car isn't worth the amount of money they are asking, be confident and make a counter offer.

To get a better idea about how much the car you want to purchase is worth, do your research on the model and mileage. This will help you be a better negotiator when the time comes.

How much should you save if you want to buy a car?

How much you save for a car really depends on several factors including the type of car you want to purchase, your financial situation, your down payment goal if you're taking out a loan, and more. You'll want to factor in the price of the vehicle, taxes, car insurance, and other fixed expenses that come along with car ownership.

What is the 50 30 20 rule?

The 50/30/20 rule is a simple budgeting technique that divides an individual's monthly employment income after tax, into three categories:

1. Needs (50%)

The needs portion of an individual's monthly income goes to essential expenses like housing, utilities, groceries, transportation, insurance, and more.

2. Wants (30%)

Wants is categorized by non-essential expenses like entertainment, going out to eat, hobbies, travel, and shopping.

3. Savings and Debt Repayment (20%)

The last category and portion of an individual's income is meant to go to things like an emergency fund, retirement savings, any investments you might have, and paying down debt.

Get auto insurance for your new vehicle

Once you purchase your first vehicle, you'll also need to purchase car insurance. All Canadians who wish to operate a motor vehicle on public roads must have car insurance. However, depending on the province or territory you live in, the requirements are different. Beyond mandatory policies, there are also optional coverages as well. Here's a closer look at the different types of auto insurance:

Third party liability car insurance

Third party liability car insurance is a mandatory insurance policy. This insurance protects you in the event you cause property damage or bodily injury to a third party. Liability car insurance will pay for the cost of attorney fees, medical costs, repairs, replacements, settlement funds, and other associated costs if a lawsuit is brought against you.

Accident benefits coverage

Accident benefits coverage is another mandatory insurance policy. It ensures that if you or any of your passengers are injured in a car accident, you will be compensated for medical expenses, rehabilitation, and other associated expenses.

Uninsured motorist coverage

If you are hit by an uninsured or underinsured driver, uninsured motorist coverage will compensate you for repairs, replacements, and other costs. Most coverage options include protection against hit and run accidents as well. This again, is mandatory for most Canadians.

Comprehensive car coverage

Comprehensive car coverage offers protection against non-collision related damage. For example, if your car is hit by a tree, suffers damage from severe weather, or other insured events. This is not mandatory, and the specific insured damages will vary depending on the insurance company you choose and your individual policy.

Collision car insurance

Collision car insurance is meant to protect drivers in the event their car is damaged or suffers a complete loss due to a car accident by paying for repairs and replacements of your car and personal belongings. This policy is optional.

Accident forgiveness

Accident forgiveness is an optional policy that first time drivers may wish to purchase. Typically if you are found at fault for a car accident, your insurance premium will increase when you go to renew your policy. However, with accident forgiveness coverage, your insurance will not increase after your first at-fault accident.

Ways to save on auto insurance

Car insurance can be expensive, but it doesn't have to be. Here are some of our best kept tips to save on insurance:

Ask about discounts

There are numerous car insurance discounts available. Whether it be for installing snow tires, anti-theft devices, or others, there's a chance that you can qualify for insurance savings. So, make sure to ask your provider.

Pay annually rather than monthly

If you can, pay for your premium upfront, rather than month-to-month. When you pay monthly you pay more because car insurance companies have to pay administrative fees each month. You can get rid of these fees by paying your insurance all at once.

Increase your deductible

The deductible is the amount you pay out of pocket for a claim before your insurance kicks in. A higher deductible can reduce your insurance costs, but only those who can afford to do so should consider this option.

Purchase usage based insurance

Usage based insurance is a method by which insurance companies reward safe driving behaviours with lower premiums. A device is fitted in your vehicle to watch your driving behaviour and calculate how much you can save on your insurance rate.

Shop around

The best thing you can do is shop around and compare car insurance quotes from different providers. Each uses a different calculation method to determine who pays what. By comparing, you can save money and get the best coverage possible.

Consider the type of car you'll buy

Before buying a vehicle, know that sports cars and luxury vehicles pay more for insurance than standard vehicles because they have higher theft rates and cost more to repair.

Review your policies

Your driving habits and needs can change often. So, remember to review your insurance policies once a year to make sure that you aren't paying for any coverage that you no longer need.

Bundle your policies

If you have more than one insurance policy like home insurance, travel, pet, or other type, consider bundling them with your auto insurance. Companies tend to offer discounts to customers who bundle their insurance with them.

Maintain a good credit score

Some companies take into account your credit score when calculating costs. Make sure you keep your debt low and pay your bills on time.

Get high quality car insurance with BrokerLink

Whether you purchased a gas or electric vehicle, a comprehensive and affordable insurance plan is essential. If you want to save on car insurance in Canada, don't hesitate to reach out to the experienced brokers from BrokerLink!

We've got locations across Canada. So, if we're in your neighbourhood, don't hesitate to come visit us in person! If you aren't able to make it into one of our locations, give us a call directly to speak with an experienced broker over the phone. Alternatively, you can get competitive, customized insurance quotes from any device using our online quote tool!

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