Tip Tuesdays: How to Save for Your Next Car After You Have Cleared the Loan on Your Present Car

by Vinaya HS on May 4, 2010

in Finance

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The only debt I have is my car loan and one of my short-term financial goals this year is to get rid of this debt (I’m debt averse; D’s obsessively debt averse). That said, I do have a long-term financial goal where I want to fully pay for my next car in cash.

How do I even come close to doing that?

Here’s an effective strategy that I came across:

Once the loan on your present car ends, imagine that you’re still continuing to pay the EMIs (or a higher/lower amount based on your circumstances) albeit on a hypothetical loan whose tenure is equal to the expected life of your present car since purchase minus the tenure of the loan that you just cleared.

Depending on this tenure, you’ll need to save/invest the EMIs on the hypothetical loan in the appropriate financial instrument.

I went further and cooked up a “My Next Car Savings Calculator”. This calculator gives you a projected amount that you’d have at the end of the hypothetical loan.

What do you think?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.




Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

{ 1 comment… read it below or add one }

Ishita September 4, 2011 at 1:27 AM

Buy­ing a car is a dream for many peo­ple. Cars have become a sta­tus quo for the cur­rent gen­er­a­tion. Easy avail­abil­ity of car loans and attrac­tive offers by reputed car man­u­fac­tur­ers has made it even eas­ier to buy a car. Demands for cars are on the rise owing to rise in income lev­els and grow­ing young earners.

Read the complete article on – http://www.investmentbazar.com/car-loan-should-i-opt/

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