So, you’re thinking about buying a car. Maybe it’s time to replace the vehicle you have or maybe you’re looking to buy your first car. Whatever your reason, it’s a big purchase and so you'll need to find ways to save up for it and learn how to save for a car
You might even be asking yourself things like, “How much should I save for a car?” “How can I trick myself into saving money for a car?” And, “Should I buy a used car or new car?”
These are all good questions because saving for a car and saving on a car are two completely different things.
The first step in how to save for a car – figure out how much car you can afford.
You can’t start a journey if you don’t know where you’re going…well, I guess you can but you’d just be wandering around aimlessly for all time.
To get laser-focused on your car savings goal, your first step will be to figure out what kind of car you need. That way, you’ll get a much better idea of how much money you need to save. Otherwise, you’ll just be aimlessly saving money for an undetermined amount of time.
But let’s not get carried away with “wants” because here’s where things can get out of hand if you’re not careful.
Be sure to assess your needs before your wants when it comes to figuring out what type of car you’re going to save for. If you don’t, you’ll end up “wanting” the most expensive car out there!
You can choose between two types of cars: new and used.
New car vs. used car
Some people think buying a new car is the only option when it comes to replacing an old car because buying a used car “might be buying someone else’s’ problems.” This isn't true.
Cars not only depreciate in value (20% the first year, 10% per year after that), insurance, fuel, but maintenance costs tend to increase each year you own the car. This is why a used car is not only a better value (monetarily) but can also be of comparable quality to a new car, especially if you do your homework. Used cars are also more popular now than they used to be, with almost double the sales volume of new cars.
Because of the increase in popularity, there is now a ton of information online about any particular type of used vehicle. From customer reviews and reliability to recalls and cost of ownership. Also, most used cars purchased through reputable dealerships have gone through multi-point inspections and carry extended warranties – some are still under the manufacturer warranty.
I've never bought a new car, and honestly, I couldn't care less.
Why should I buy a used car?
You can save money for a used car in almost half the time you would for a new car. Remember, a car depreciates nearly 20% during its first year.
On average, a new car costs about $35,000 while the same type of used car (in perfect working condition but a couple of years older) can go for around $14,000. The gap between new and used vehicles has never been higher (as of June 2019 when this article went to press.)
An older model vehicle (5-10 years older) can be purchased in the $5000-$10,000 range. This will most certainly save you money on car payments and insurance rates, and in most cases, depending on what you choose, fuel costs.
The TL:DR: If you plan to buy a car in cash so you don't have a car payment each month, used it most likely the way you'll want to go.
What if I want to buy a new car?
If you decide to opt for a new car, just know that you’ll need to wait a little longer to save but it could be worth the wait.
Buying a new car makes sense for those who don’t want to worry about major maintenance costs for the first few years (usually 5 years). Some people would rather buy a new car because they want to hold on to the car for a long time and don’t mind saving up for major maintenance in the long run.
If this is the case, be sure you have money for a down payment (at least 15% of the purchase price) and/or a good credit score so you can get a low-interest rate on auto financing.
What kind of car should I get?
No matter where you live, there will be a lot of choices when it comes to picking out a car. In fact, you can now buy a car online and have it shipped to you! Gone are the days of dealing with car salespeople so don’t be afraid to go for what you want/need.
Take the time to really think about what you’ll be using the car, day to day operation, what features will you need:
- Passenger capacity/size (SUV, crossover, 4-door, 2-door)
- Cargo capability
- Parking capacity (size of a car – do you live in an apartment building with limited parking)
- Fuel economy (what do your commutes to work, school and leisure activities look like)
- Towing needs
- Safety features
- Insurance costs (for you and your family – do you have teenage drivers?)
How do I do research when buying a car?
Now that you have an idea of the type and car features you need, do research on that particular kind of car.
Let’s say you need a 4-passenger crossover type vehicle (think Toyota Rav4 or Kia Sportage). Do some research on all the different types of vehicle in that class. Look for things like:
- Fair market price (know how much you need to save)
- Vehicle or equipment recalls
- Overall costs of owning the car
- Resale value
- Safety ratings
- Fuel economy
- Customer satisfaction
- Insurance rates
What websites can I use to check and see if a used car is a good buy?
- Use sites like Kbb.com, Cars.com, and Edmuns.com to do your research.
- You can read reviews on cars from owners who can provide honest feedback about how their vehicles are holding up years after purchasing them.
- For used cars, you can check out the National Highway Traffic Safety Administration (NHTSA) website to research recalls by specific vehicle identification number (VIN) or vehicle year, make and model.
You can also get a calculation on how much you can expect to pay for maintenance each year you own the vehicle (depending on which car you choose).
Doing this kind of homework can save you thousands of dollars in the long run AND give you a specific dollar amount to start your savings goal with.
How to save up for a car: budgeting faqs
How much should I save for a car?
At least 15% for a nice downpayment (which will often get you a lower interest rate, or at least limit the amount you need to finance), or enough to buy a used car in cash.
If you have an idea of the kind of car you want and a good idea of how much it will cost you, you can definitely set a goal much money you need to save.
- Cars.com has a great calculator that shows different car-cost metrics.
- This affordability calculator can show you the price range that fits your monthly budget.
- If you already know the vehicle price, interest rate of the loan, and loan rates, their car loan calculator can show what you would pay in monthly payments and give you an overall price.
These helpful calculators will give you an idea of how much you can realistically afford when it comes to buying a car. And it can get you on the right path to set up your budget to start saving for a car.
How can I save money fast?
In a nutshell, here are the practical steps you’ll take to save up for a car:
- Find out the type of car you want
- Research that specific vehicle type
- Decide whether you want to buy the new or used version of that car
- Figure out how much the car you want will cost you (are you saving to buy the car outright or just a down payment?)
- Start a car-savings goal and add it to your household budget
- Cut spending and do odd jobs to earn more money
- Check your credit and get prequalified for a loan
- Shop smart for a car
How can you save money for a car faster?
If you know how much you need then figure out when you need the money. Your rate of saving will determine how much you need to save each month.
Are you saving for the full payment – buying the car outright? Or are you saving for a down payment and financing with a car loan?
- There are ways you can save money fast – check out how I saved $1000 in just 45 days – so knowing your numbers and your timeline is key.
- Another way to help you save money fast is to cut as much spending as you can (temporarily) at least until you reach your goal.
- 13 side gigs that make $1,000+ per month
Hustle to earn extra money for savings
Now’s the time to make some extra money with a side hustle to put toward that car you’re saving up for.
- Drive for Uber or Lyft
- Find legit side jobs on Craigslist
- Pet sit with Rover
You can also look around your house to find things to sell online, or have a local garage sale.
- Sell unused brand name clothing on ThredUp
- Get rid of old tech and CDs with Decluttr
- Sell old textbooks and literature with Bookscouter
You declutter your house and make some money at the time time, it’s a win-win situation!
How can I save money for a car on a low income?
Being on a low-income scale doesn’t have to discourage you from saving up for a car. There are a ton of creative ways to save money that can help you get to your financial goals faster.
- One great way to trick yourself into saving money for a car is to automate your savings each month so you don’t have to think about it. There are apps that can help save small chunks of money for you.
- Qapital can automatically move money into a car-savings account on monthly/weekly intervals.
- And an app like Ibotta can give you cash back on your shopping trips to the grocery store.
- Looking for a FREE savings account? CIT Bank has a “Savings Builder” feature which gets you their highest rate (currently 2.4%) if you can commit to auto saving $100 every month. No minimums, no monthly fees, $100 to open.
What to do When You’re Ready to Buy a Car
Shop around for an auto loan
If you’re going to finance a loan for a car instead of buying one outright, you’ll need to shop for an auto loan.
- You should find out if you pre-qualify even before you begin saving. We like using LendingTree but sites like kbb.com and even your bank can help you get a loan so you don’t have to rely on one from the dealership. You’d be surprised how many people forget to do this step!
- And just like any other type of loan, your credit score will dictate what kind of interest rates you’ll get with a car loan. Just a 1% difference in rates could save you thousands over the life of owning the car.
- Lower interest rates means more money saved, lower monthly payments, and a better ability to continue to save for other goals (like car maintenance, a house, or that trip to paris).
- While you’re working on saving money, do a check on your credit score. If your score isn’t that high, take this time to work at getting a better credit score so when you are ready for that car loan, you can get the best rates and save as much money as you can on that car loan.
When is the best time to buy a car?
If you’re going to a dealership to buy a car, experts say the best time to shop is early in the week (Monday, Tuesday, Wednesday) but late in the month (last week of the month), and/or late in the year (October, November, December) or end of the quarter (March, June September, December).
These are the times that most dealerships are trying to reach sale quotas. Also….
- Early in the week is when it’s usually not that busy (as compared to the weekend when everyone goes!)
- It’s also a good time to shop for deals closer to the holidays.
- If the end of the year won’t work for you, experts say try to time your purchase around other major national holidays like President’s Day, Memorial Day, Veteran’s Day, or 4th of July when dealerships tend to offer deals and specials.
The Final TL:DR
When saving up for a big purchase like a car, it pays to be persistent and not get discouraged by the high price. Saving for a car, much like saving for a house, takes time and doesn’t happen quickly. However, once you’re driving around in your new-to-you car, you’ll be happy your persistence paid off!