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How to Save Up for a Car

November 11, 2020 · 4 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

How to Save Up for a Car

Does anything feel quite as good as hitting the open road in a shiny new car? Alright, a hot stone massage might feel better, but it’s still pretty hard to resist that new car smell. Buying a car should be a celebration, but often it can bring financial stress into your life. That’s why it’s important you take your time saving up for a car.

Learning how to save for a car may not be as fun as the road trip you’ve been fantasizing about, but it’s a necessary step if you want to buy your car in a stress-free way. We’ll break down the ways to save for a car so you can spend more time checking out roadside attractions and less time worrying about your bank account.

Step 1: Researching and Shopping Around

If buying a new car is your plan, start your research by comparing a variety of makes and models. Figure out what’s right for your needs and budget. You can visit dealerships in person or review manufacturers’ websites to research car models that catch your fancy. Don’t be afraid to ask questions! Ask car sellers to clarify any fine print in their advertisements and try your hand at haggling for a better deal.

When shopping for a car, you should take advantage of any deals you can find such as rebates and special dealership offers. You can receive quotes from multiple dealerships—make sure you ask them if the price quoted includes deducted rebates. This process may feel tedious, but it will help you learn which make and model you can afford.

Purchasing a used car can potentially save a lot of money. If you find your dream car for sale as a used vehicle, you may need to be prepared to make the purchase quickly before someone else purchases the car.

That’s why it’s important to determine how much you can spend on a used car before you begin your search. The last thing you want is to feel pressured into spending more than you can really afford because you think a good deal is slipping away.

Before you begin shopping, review the used car market for the makes and models you are considering, to get an idea of what it may cost for you to buy the used car you want.

Before you purchase a used car, it’s good practice to follow the steps recommended by USA.gov for your financial and physical protection.

Steps like finding out if the car has any recalls, researching if the warranty is still in effect, and having a mechanic inspect the vehicle before making a purchase will hopefully keep both you and your wallet from being injured.

Step 2: Calculating Your Down Payment

Parting with a solid chunk of cash is never fun, but an appropriate down payment can help to make your car repayment process more manageable. There are two ways you can go about calculating your down payment:

Option 1: You can choose a make and model based on how much you’ve already saved for a down payment.

Option 2: Pick out which make and model you’d like to buy, get a price estimate, and then determine how large you’d like your down payment to be.

A 20% down payment is often recommended when purchasing a car, but this is not a set rule. Generally, the higher the down payment is, the lower the interest rate on your loan may be. Your down payment amount should ideally help bring your monthly loan payments to a cost you can afford.

If you have the cash flow to be able to purchase your car outright, then you can skip step three. Also, congrats, that’s a huge accomplishment! But if you can’t, there is no need to feel alone. 44% of American adults have auto loan debt.

Step 3: Calculating Your Monthly Payments

Buying a car can cost a pretty penny. According to a report from Experian , the average monthly car payment was $554 for a new car and $391 for a used car.

If you want to determine how much your monthly car payment will be, you can sit down and crunch the numbers, or you can let the Cars.com car loan calculator do the work. This calculator is designed to help you estimate what your monthly car loan payments will be throughout the life of your auto loan.

The process is fairly simple. To use the calculator, enter the vehicle price, down payment amount, trade-in value (if you are trading in a vehicle), sales tax rate, interest rate, and the rate of your loan.

The calculator will take care of the math and present you with your estimated monthly payment. Next, it’s time to figure out how to save up for a car.

Step 4: Creating a Savings Plan

Unfortunately, the need to buy a car doesn’t always happen according to schedule. An unexpected breakdown, pricey repairs, or a change in your commute can all speed up your car-buying timeline.

An unplanned car purchase can lead to copious amounts of stress and unnecessary costs.

If you are able to, one good idea is to create a savings plan in advance of buying a car so you can take your time making such a big financial decision—and it could help you find more affordable options.

Steps one through three should have given you a decent idea of how much money you’ll need to save for a down payment, and how much money you’ll need to budget each month after you purchase your vehicle.

One approach to saving is to take the amount you’ve determined you’ll need for a car upfront (don’t forget to subtract any money that may come from selling or trading in your current car) and divide it by however many months you have left until your ideal purchase date.

The number you get after doing this equation is how much money you should be saving each month to meet your goal. You might also think about saving more than that per month so you can prepare for your monthly payments.

And if you’re currently driving an older vehicle that is prone to issues, you may want to save a little extra as a cushion for any necessary maintenance or repair costs. Remember, saving for a car can take longer than you’d planned and that’s okay.

Step 5: Boosting Your Savings

Learning how to save money for a car can take a little trial and error. If you need to boost your saving efforts, consider SoFi Money®. This cash management account allows you to spend, save, and earn all in one place.

That means the money you put aside for your new car could help you earn even more money. Happy driving!

Ready to start saving for a new set of wheels? Check out SoFi Money today.
 


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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