According to Car & Driver, the average transaction price for a new car tops $48,000 in spring of 2023. And Kelley Blue Book says that the average used car price tops $26,000.
Whichever option you may be pursuing to get yourself some wheels, that’s not an insignificant amount. You likely know that the more money you put down, the lower your monthly payments will be. That’s even more incentive to save up as much as you can for a car.
There are a few simple steps that can jumpstart the process and help you get your funds together for a car. These can include researching your options, then setting a budget for a new vehicle, and putting systems in place so it’s faster and easier to save.
Here’s how to make saving up for a car as quick and easy as possible.
Researching Your Options
If your plan is to buy a new car, you can start getting a sense of costs by researching car options that might fit your needs and budget.
Some questions to consider when buying a car include:
• Do you want a compact, sedan, wagon, minivan, truck or SUV?
• Will you use it for work, travel or school?
• What features are important, and which can you live without?
You can read articles, peruse car review sites, visit dealerships in person, and/or review manufacturers’ websites to research car models that appeal to you.
You may also want to look into purchasing a used or preowned vehicle, and seeing exactly how much this could save you. You can get a sense of costs by reviewing the used car market for the makes and models you are considering.
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Calculating Your Down Payment
Once you have a rough idea of how much it will cost to get the car you want, you can start figuring out how much you may need for a downpayment.
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.
A 20% down payment is often recommended when purchasing a new car, and a downpayment of 10 percent is a general guideline for a used car.
But this is not a set rule.
A higher down payment can lead to lower monthly car payments. For one reason there’s less money to finance. For another, a lender might extend better terms, such as a lower interest rate, when you make a substantial downpayment.
Your down payment can include cash, the trade-in value of the vehicle you drive now, or a mix of the two.
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Calculating Your Monthly Payments
If you believe you can save up enough to buy the car outright, way to go! That means you will ultimately pay less for the car because you’ll avoid paying any interest.
But if, like many people, you plan to get an auto loan, you may next want to determine how much your monthly car payments will be.
You can sit down and crunch the numbers, or you can let an online car loan calculator do the work. These calculators are designed to help you estimate what your monthly car loan payments will be throughout the life of your auto loan.
Steps to Saving up for a Car
Once you have a general idea of how much you need to save up for a downpayment, and how much money you’ll need to budget each month after you purchase your vehicle, you can set the saving money process in motion.
Here are some smart steps to help you get to the finish line.
Figuring Out How Much to Save Each Month for a Car
You can come up with a monthly savings goal by taking the amount you’ve determined you’ll need for a car upfront (subtracting any money that may come from selling or trading in your current car), and then dividing 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 ideally want to save 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 isn’t an overnight process and it may take longer than you initially expected, and that’s okay–the key is to get started.
Finding the Right Savings Account to Save Up for a Car
If you haven’t set up a savings account yet, this may be a good time to do so.
Good options for a short-term saving goal like buying for a car include: a high-yield savings account, money market account, online savings account, or a checking and savings account.
These options can offer a higher interest rate than a standard bank account, yet allow you to access your money when you’re ready to buy your car.
Having a savings account that is separate from your spending account can help you keep track of your progress, and allow you to know exactly how much money you have for a down payment for your car.
Making Saving for a Car Automatic
Once you have a good place to start and build your car savings, consider setting up automatic contributions to this account. You may hear this referred to as automating your savings.
You can time these transfers to happen on the same day each month, maybe right after you get your paycheck.
This makes sure the savings happens (since you won’t have to remember to transfer the money), and also ensures that you don’t accidentally spend the money you want to put aside each month to save up for your car.
Cutting Back on Extras
If your current budget doesn’t give you much room to save for a car, you may want to see if you can pair back some of your monthly expenses.
For instance, if you’re paying a high price for cable each month, but primarily watch streaming services, you may be able to cut that line item right out of your budget for a significant savings.
Or, if you seldom use your gym membership, you might want to pause or cancel it and jog around the neighborhood and/or stream workout videos at home for free instead.
Or, you might be able to save money on food by cooking more and eating out/getting takeout less often. You might also decide to only use your credit card for essentials for the next few months.
Any changes you make don’t necessarily have to be permanent. You may decide that you can go back to certain spending habits once you have a sufficient down payment to buy a car.
Finding a Extra Stream of Income
If your current income is only enough to cover your current bills, you may want to look into taking on a low-cost side hustle to help you save up for a car.
You might be able to get some extra work delivering people’s groceries, mowing lawns, babysitting, cleaning houses, driving for a ride-share service, selling homemade goods online, or working as a virtual assistant.
Or you might be able to turn one of your talents into some freelance work, such as designing websites or managing social media for a local business.
Earning a little extra cash can go a long way, giving you the chance to put more toward a car, borrow less money, and lower your monthly payment.
Trading in or Selling Your Old Car
Trading in your old car to help fund your next car purchase, and is often a good option to lower the overall amount you’ll owe on your new vehicle.
To get the most money, it’s a good idea to compare what different dealers will offer you for the car.
You can also research what your car may be worth on sites like Edmunds and Kelley Blue Book to see if your trade-in offer seems reasonable.
You may also want to look into selling the car yourself to a private party since it could yield a higher price than trading in. The tradeoff is that this typically requires a little more work.
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Getting the Best Deal on a Car
When you’re ready to start seriously shopping for a car, you’ll want to take advantage of any deals you can find, such as rebates and special dealership offers.
You can receive quotes from multiple dealerships; it’s a good idea to ask them if the price quoted includes deducted rebates. This process may feel tedious, but it can help you learn which make and model you can afford.
If you’ll be financing the car, you may also want to shop around for auto loans. You can check with various lenders, including banks and credit unions, to see who might offer the best lending terms.
With that information in hand, you can ask the car dealership whether it can offer a better financing deal.
If you do decide to go the used car route, it’s a good idea to follow the steps recommended by consumer.gov, such as 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, for your financial (and physical) protection.
A car is a major purchase, and it’s a good idea to save up as much as you can before you take the plunge.
For one reason, you may be able to buy the car outright, and avoid taking a loan (and paying interest). For another, the higher your down payment, the lower your monthly car payments may be once you purchase the car.
Learning how to save money for a car can take a little trial and error. You may need to rejigger some of your expenses and find ways to cut back and/or bring some extra money, at least temporarily.
Ready to start saving up for that car? You may want to consider signing up for a SoFi Checking and Savings account.
With SoFi Checking and Savings’s Vaults feature, you can separate your spending from your savings (even create a Vault specifically for car savings) while still earning competitive interest on all your money.
Plus, you’ll earn a competitive annual percentage yield (APY), and there are no account fees.
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