Tips On How To Save Money To Buy A Car
Whether it’s a brand-new car or a used one, purchasing your first vehicle can be a significant expense. A recent survey revealed that in 2022 alone, car prices increased twice last year due to a hike in input costs. In a fluctuating market like this, buying a car requires careful consideration.
Cars don’t come cheap, even if you opt for the most basic models. Moreover, getting a vehicle is not enough; you must also pay for its maintenance and fuel expenses.
The initial cost of purchasing the car, maintenance, insurance expenses, registration charges etc. can make your budget go through the roof.
Through this article, we aim to help you make a sound decision by highlighting how much a car purchase will likely cost you and how to save money to buy a car. So, read on!
How Much Money Do You Need To Save?
The following considerations will help you decide how much money you must save.
- Car Type
Determine the car type you want to buy; hatchback, sedan, coupe, SUV, MUV – the options are endless. Each one of these has varying specifications and price tags. For instance, hatchbacks are cheaper than sedans, while sedans are cheaper than SUVs or MUVs. Hence, your choice of vehicle will be crucial in helping you estimate the money you need to save.
Pro Tip: Choose a car based on your budget and affordability, not your desires or whims. Remember, while high-end vehicles are great, they may not be budget-friendly if you are in the middle-income category.
Assess your spending appetite before zeroing in on a particular model. For instance, a Sedan or SUV would be a great choice if you have a budget between Rs. 10 to 20 lakhs.
- Car Loan
Once you know which vehicle type you want to buy, decide whether you want to finance the purchase out of your pocket or resort to a loan for it. In the case of the former, the availability of capital is vital. There are two probable situations – you have built a substantial corpus already, or you need to start working towards building one. Either way, you can assess how much money you need to save.
On the other hand, if you want a car loan, you need only to save for the down payment. Lenders usually finance up to 80% or 90% of the car’s ex-showroom price. The rest constitutes the down payment. You can increase the down payment to limit your loan liability.
For instance, if you’re going to make a down payment of Rs. 5 lakhs on a car priced at Rs.15 lakhs, you need to save accordingly.
- Timing of Purchase
Deciding when you would need the vehicle is important. For example, if you want to buy a car after five years, investing in short-term investment instruments like SIPs, mutual funds etc. can be one option. The returns earned from these investments will help you pool in money for your dream car. On the other hand, if you want to buy sooner, you may need to plan your finances accordingly.
Take Recurring Costs into Consideration
Owning a car entails various recurring expenses. Some of these are listed below:
- Regular Servicing
You must get your car regularly serviced to enhance its life and performance. Servicing includes changing the engine oil, maintaining the wheel alignment and an overall inspection of the car. While the first few sessions might come free if your vehicle is new, subsequent sessions will be cost-intensive.
- Fuel or Electricity Costs
Whether your car runs on electric power, petrol, or diesel, the running costs will always form a significant part of the recurring expenses list and hence, need to be factored in. Though electric cars are quite low on fuel expenses yet it will cost you more when purchasing.
- Insurance Premiums
Insuring your brand-new vehicle for its entire lifespan is always a good idea. However, as much as vehicle insurance is necessary, it also comes with the liability of periodic premium payments.
- Repair Costs
If your vehicle suffers any type of damage, you will have to repair it. So, factor in the possible contingent repair costs you may have to incur.
How to Save Money to Buy a Car?
To help you understand how to save money when buying a new car, here are some pro tips:
Make a Budget
A budget will list your income and expenses and give you a clear picture of your finances. You can also figure out how much savings you can put aside every month. Moreover, budgeting allows you to assess your spending capacity. So, draw up a budget plan and stick to it.
Cut Down on Your Expenses
Unnecessary expenses reduce your savings, thus making it challenging to fund a new vehicle. So, identify the costs which are unnecessary and curb them. Try and find cost-effective alternatives to your regular expenses. For instance, if you travel to work in a cab, opt for a bus or a metro service to reduce commuting costs.
Look for Passive Income Avenues
Passive income refers to earnings that you had not necessarily worked for. For instance, if you lease out an apartment, the rent you earn every month becomes a passive income source. The dividend or interest income you earn from investments can also be a good source of passive income. It helps supplement your regular income and allows you to save more.
Use the Old Car to Get a New One
If you have an old car or a two-wheeler that you can sell, sell it off and use the earnings to save up for the new vehicle. For instance, say you have an old car that you can sell off for Rs. 5 lakhs. In that case, you can use Rs. 5 lakhs to pay for the new car’s down payment if you take a loan. Alternatively, Rs. 5 lakhs would add to your savings corpus and help you fund a new car.
Set up a Dependable Financial Plan
To save for the car, you need a fool-proof financial plan that helps you save and earn returns.
Choose an Investment Instrument
The interest income earned on your investments will help boost your savings. For instance, if you invest in a fixed deposit scheme, you will get a fixed interest on your investment. But, of course, you can choose other fixed-income debt instruments too, and get guaranteed returns.
Similarly, you can get market-linked returns if you invest in mutual funds.
These returns are inflation-adjusted, so you can save up an adequate amount after factoring in inflation. Moreover, the returns also compound over time and give you interest on the interest already earned. This enhances your returns, thus helping you to save more.
That is why, while you save for the car, put your savings in an investment instrument to earn returns. You can choose fixed or recurring deposits, bonds, mutual fund SIPs, etc., to create the desired corpus.
How To Save On Car Maintenance Costs
Given below points are how you can save on the maintenance costs of the car, one of the most cost-intensive areas of owning a car:
- Get your car regularly serviced.
- Replace the engine oil and filter regularly to enhance the engine’s life.
- Clean the air filter regularly for better mileage.
- Use the correct tyres to avoid over-exertion of the engine. Moreover, check the air pressure in the tyres regularly. It should be in the range as precribed by the car maker.
- Ask the manufacturer or the dealer whether high-performance fuel is needed for the car. Some high-end cars run better with high-performance fuels. So, if recommended, spend a bit more on high-performance fuels for better mileage, engine durability and longer life.
- Change your car’s coolant fluids regularly.
Remember, a well-maintained car has a higher lifespan and better resale value.
Discounts To Avail While Buying A Car
Discounts sound like music to the ears, don’t they? When wondering how to save money on a new car, discounts help.
Here are a few discounts that you can avail of:
From Manufacturers’ End
Car manufacturers often give special discounts to their customers. You check these discounts out directly on the manufacturer’s website. For instance, some car manufacturers offer extra discounts to loyal customers who own the same brand’s car. So by selling your old car to the same manufacturer, you can avail extra discount while purchasing the new car.
From Dealer’s End
Even car dealers offer discounts to motivate customers to make a purchase. So, visit different dealers and find the best price each is offering for the vehicle. Then, negotiate for an on-spot discount, and you will be surprised at the offer you can get.
Also, check the Vehicle Identification Number of the car. Dealers usually want to get rid of old stock and can offer you a significant discount if you buy older manufactured cars.
Buying During the Festive Season
Car markers offer attractive discounts, deals, gifts, etc., during the festive season like Diwali, Ganesh Chaturthi, Holi, etc. Because customers are more likely to shop during the festive season, festive offers help nudge them to make the purchase. So, buy a car during the festive season for added discounts.
Tax Benefits on Electric Cars
Think electric when saving up for a new car. Electric vehicles have become quite the rage in recent times not only because of their environmental impact but also because of the tax benefits they offer.
Section 80EEB of the Income Tax Act, 1961, provides a deduction on the interest you pay on loans. The interest expense can be deducted from your taxable income, lowering your tax liability. The conditions to avail of the deduction under Section 80EEB are as follows:
- You can avail of the deduction only once.
- The deduction is offered if you opt for a car loan from a recognized financial institution.
- The limit of deduction is Rs.1.5 lakhs on the interest amount of the loan.
- You should take the loan between 1st April 2022 and 31st March 2023.
So, buying an electric car can help lower your tax liability and also allow you to save on fuel costs.
Buying a car has become easier with the availability of car loans. However, you should save enough to fund the down payment and pay for the car’s maintenance and running costs. Hence, it is essential to understand how to save money to buy a car before investing.
Frequently Asked Questions
How can we negotiate while purchasing a new car in India?
You can negotiate with the dealer about discounts on the car’s price directly. Additionally, If you are taking a car loan and you have a credit score above 750, lenders will likely offer a lower interest rate so you can save on the interest cost of the loan.
What things should we consider before buying a used car?
If you are purchasing a used car, consider the following aspects before signing on the dotted line:
a) Age of the vehicle.
b) It’s current mileage.
c) The condition of the car.
d) The asking price.
e) Whether the car has ever been involved in an accident or not.
f) If there have been any major repair works on the car.
g) Whether the paperwork of the previous owner is in order or not.
Total number of the previous owners
Should I buy car insurance from the car dealer?
Car dealers usually bundle up the insurance policy when selling you a car. However, accepting the policy offered by the dealer is not mandatory, as you also have the option to buy an insurance policy independent of the car purchase deal.
How can I save on driving expenses after buying a car?
To save on driving costs, you can take the following steps:
a) Use the carpool facility. You can alternate between vehicles of the carpool members.
b) Drive your car safely and try and use fuel-saving manoeuvres. For instance, drive at a uniform speed, try not to stop suddenly, avoid slow-moving traffic, etc.
Do car loans allow any tax benefits when I buy a new car?
If you avail of a car loan for an electric vehicle, you get a tax benefit on the interest paid up to Rs. 1.5 lakhs under Section 80EEB. However, if you take a car loan to buy a vehicle powered by petrol or diesel, no tax benefit would be offered on loan and any interest you pay thereon.