When purchasing a new car, there are certain things people need to consider so they'll be financially ready, according to thesimpledollar.com.
If people can't afford to make a sizable down payment on a new car, they can end up paying around 30 percent more than the car's total value in interest, according to the Simple Dollar.
It's always nice to have no monthly car payments. Once buyers realize they're going to need a new vehicle in the next few years, Simple Dollar recommends making monthly payments into their savings account.
Paying around $250 each month into a car replacement fund will not only give people the money to purchase a vehicle without interest, but the fund should also earn interest. And if there isn't enough money to fully pay for old car's replacement, the monthly payments will at least be lower.
People should think of it as a "money saving car payment," according to the Simple Dollar. Instead of writing a check to a bank where a portion of it is siphoned off the top for interest, buyers could instead be putting that same amount of money into a savings account, acquiring interest over time.
For example, if you trade in a car worth $1,000 toward a $10,000 car, you end up with a $9,000 loan with 7 percent interest for three years.
Your payments would be $289 a month. Once the loan is paid off, at the end of the three years, put that $289 a month into your savings account. With a one percent interest rate on your savings account, after five years, you will have saved $7,000. You can now go purchase $7,000 car without interest, or wait a little while longer, and get a $10,000 car — again, without paying interest.