Whether you’re upgrading your ride or purchasing your first vehicle, buying a new car requires thoughtful research and planning. While a credit card could help you earn rewards on gas or maintenance needs, you typically finance your car through a car dealership. Before you take the leap, it can be helpful to determine your down payment and develop a budget for your monthly car-related expenses. Read on for effective ways to save for a new vehicle that can help meet your needs without breaking your budget.
How to Save for a Car
Published March 11, 2024
4 min read
Key points about: saving for a car
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Before you shop for a new car, it’s important to establish a budget that includes your down payment, monthly bills, and additional expenses.
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A down payment could help you save money on interest and avoid overspending on your car.
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Cutting unnecessary expenses and taking on another job could help you save for your car more quickly.
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Establish your car budget
Before you begin shopping, you should have an idea of what you can afford. To determine your car budget, consider your current financial situation, including income, monthly expenses, and debts. With these figures in mind, estimate how much you can comfortably allocate to your car savings. Getting a car could stretch your budget, but you don’t want it to make it difficult for you to cover necessities.
With your price range in mind, you can begin researching your options. What models are realistic for your budget? Consider the features you’d splurge on and any add-ons you could do without. In addition to shopping around for the car itself, compare financing options. Some lenders may offer you a better deal than others.
Determine your down payment
Your down payment influences the monthly payment for your car, the length of your auto loan term, and how much interest you ultimately owe. The more money you manage to put down right away, the lower your monthly payments. A big down payment could also help you repay your car loan more quickly. With a shorter loan term, you may reduce your interest charges.
Your down payment may vary based on your financial circumstances and the car’s cost. However, as a rule of thumb, Experian explains that putting down at least 20% of a new car’s price, and 10% for a used car, is a good idea.
Consider additional car expenses
Without careful planning, the costs of a new car could leave a dent in your budget. Extra expenses include registration costs, maintenance, car insurance, and gas. Insurance premiums may vary depending on your age, driving record, where you live, and credit score. Gas costs may vary based on how much you drive, gas prices, and your car’s fuel efficiency. Keep those factors in mind as you save.
Did you know?
A credit card that offers cash back rewards could be one way to help your car savings plan. As you use your rewards credit card, you’ll earn back a percentage of what you spend. When you redeem your rewards, you can put that toward your savings fund. See if a rewards credit card is right for you.
Check your credit score
Checking your credit score before you go car shopping could help you make informed decisions. With a higher credit score, you may qualify for more favorable car loan terms, like a lower interest rate or smaller payments. If your credit score is less-than-ideal, a larger down payment could help you secure the car you want.
You may be able to check your credit score through your credit card issuer, a credit score service, or a credit reporting agency, according to the Consumer Financial Protection Bureau. AnnualCreditReport.com also offers free access to your credit reports (though they don’t typically include your scores).
Start your car savings plan
After you’ve established your price range, you can begin saving for your car. The right savings plan for you depends on your unique financial situation. One popular budget framework is called the 50/30/20 plan. That means 50% of your income goes to expenses, 30% to non-essential purchases, and 20% to savings. You might try a few budgeting tools until you find the right fit.
Use your monthly budget to figure out what you can save for a car
With your car budget and savings goal in hand, review your budget and expenses. If you usually have extra money at the end of the month, consider how much of it will go to your car savings. On the other hand, if you tend to expend most of your income, you may need to make some changes to afford a new car.
Cut expenses
To build your savings more quickly, you may reconsider some of your existing expenses. Car costs shouldn’t affect your necessities like groceries or rent. However, you might have to reduce non-essential costs like streaming services, travel, entertainment, and dining out to meet your car savings goal.
Sell or trade your old vehicle
If you’re replacing your old car, trading or selling it could help you earn extra cash. Some dealerships reduce the cost of your new car if you trade in your old vehicle. Researching your old car’s value could help you negotiate the best deal.
You could also sell your old car if your dealership doesn’t offer what you’re looking for. Finding a buyer may take extra time and effort, but could be worth it if it means getting something for your old car.
Get a side job
If you can’t make room in your budget for a new car, a side job could increase your income. Consider your availability, lifestyle, and skills. Popular side gigs include freelance writing, selling your art, babysitting, or food delivery. You might consider placing all your extra income into a separate savings account for your new car.
A new car could have a significant impact on your wallet. However, careful budgeting and saving could save money and stress as you pursue your financial goal.
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