3 Tips on How to Afford Your Dream Car
When traditional budgeting isn't enough, these three financial tips may help you afford your dream car faster.
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Whether it's a new sports car you've been eyeing or a vintage van you can imagine restoring, many of us have that one vehicle in mind that has always felt just out of reach.
When traditional budgeting simply isn't getting you close enough to a down payment, there are a few financial techniques that could potentially increase your ability to afford your dream car sooner rather than later.
Invest in a High-Yield Savings Account
Instead of leaving your money in a standard checking or savings account, you can take advantage of high-yield savings accounts to boost your interest return and afford your dream car faster.
High-yield savings accounts have interest rates significantly higher than regular savings accounts — as of March 2023 the Federal Deposit Insurance Corporation (FDIC) has current high-yield averages around 4% compared with 0.43% for regular savings.
These accounts may not grow at the same rate as a more aggressive investment, but they do provide an alternative long-term solution when figuring out how to save up for a car. High-yield savings accounts are also FDIC insured up to $250,000 per depositor, so your money stays safe.
High-yield savings accounts do have a few drawbacks that should be considered when investing. These accounts often have a limited number of withdrawals, which — while not an issue for those determined to save — can impact your ability to put money in or take money out of the account as easily as with a regular checking or savings account. The interest rates for high-yield accounts are also variable, which means the rate you initially invest in may increase or decrease over time depending on external factors like federal interest rates.
Make Your Car Work for You
The market for leveraging your car to make extra money is full of possibilities. With rideshare and carshare programs, your current vehicle can be a secret weapon in offsetting the costs of affording your dream car.
Uber and Lyft offer drivers the chance to make extra money on their own time by offering rides to passengers. Between fares, promotions, and tips, you have the potential to accelerate your car-buying journey by using your vehicle as an asset.
If you choose to buy your dream car first, you can offset the costs (and possibly make a profit) by qualifying for Uber Premier — a higher-paying version of the service for luxury vehicles — depending on your Uber driving history, city of operation, and vehicle.
Another way to afford your dream car is by renting it out using car-share apps such as Turo. Depending on your car and region, Turo suggests that you could see 50% to 200% for your return on investment, making it easier to afford or pay off an expensive car.
Keep in mind that both of these methods may lead to extra wear and tear on your vehicle, so consider the impact to your car and budget before you sign up.
Build Your Credit With a Secured Credit Card
Unless you're paying for your dream car in cash, you'll need good credit to qualify for a loan. In fact, you may need excellent credit, as many luxury car brands have higher credit requirements.
If your credit is less than ideal, you may be able to build it back using a secured credit card. These credit cards require an initial deposit to secure your lender's investment in case of missed or late payments. However, if you're on time with your payments, this deposit will likely be returned when you close your account. Consult the terms of your agreement with your secured credit card issuer to verify how it handles initial deposit returns.
If you choose this method, you may only need to use this type of credit card until your credit is good enough to qualify for an unsecured card. If used carefully, you could improve your credit in six months to a year before qualifying for an unsecured card. As you continue to build your credit, you'll improve your chances of auto-loan approval, and get into the driver's seat of your dream car faster.
