How Should New Drivers Start Saving for a Car?

In this post, we’ll cut out the jargon and explain how to start saving for a car.

Why should you start saving for a car?

With all the car finance that’s available, you may find yourself wondering why it’s even worth saving for a car.

With car finance, you borrow a pre-determined amount of money against the purchase of a vehicle. You then pay this money back via a series of monthly instalments – plus interest.

As such, if you can start saving for a car deposit (sometimes called a down payment), you’ll be reducing the sum of your monthly car finance repayments. You’ll also be saving on the total car finance that you owe, because you won’t have as much interest to pay.

For example, if you borrow £7,000 for your car finance, you may face monthly repayments of £265. The overall amount that you might pay for your car finance could therefore reach £9,500. However, by putting down an initial deposit of £2,000, your monthly repayments would drop to £190. You’d be paying back £8,800, saving you £700 overall.

The higher your interest rate, the higher the amount you’ll save if you put down a deposit. Aiming to save between 10 and 20% of the overall amount is a good figure to go for.

How to start saving for a car

Your unique circumstances will determine what car finance is right for you. The size of deposit you can aim for will also be unique to you, and will vary according to the kind of car you’re saving up for.

Although it’s beneficial to have a higher deposit saved up, you should also be realistic. Break down your monthly budget, factoring in all expenditure, and establish a realistic figure for the amount that you can expect to save each month.

Also, remember that once you’ve secured car finance and a new vehicle, there will be other vehicle expenditures, such as maintenance and insurance fees.

Once you’ve established a realistic figure to save towards a car, you can decide where to store that money.

If you already have a savings account, you could set up a regular direct debit or standing order. This will automatically transfer a set amount each month, so that you don’t have to think about it. If you don’t have a savings account, take the time to compare different options.

If you already have a car, remember that you can trade it in or sell it. That can help to offset the cost of your next vehicle. Just remember to compare offers from different dealers or private buyers before settling on your final choice.

Find car finance today

Now that you’ve learned why and how to start saving for a car, you can start to think about your car finance. Contact My Car Credit on enquiries@mycarcredit.co.uk to learn more.