How to Save Money for a Car

A car has become a necessity for most people since it may be their only means of getting to places like school, work, the pharmacy, and the grocery store. But purchasing a car is no small purchase, with the average price of a new car reaching more than $48,000. The good news is that saving to buy a car can minimize the amount you have to borrow. That puts you in a stronger position at the dealership and can save you thousands of dollars in interest. Keep reading to learn more about ways to save money for a car!

Key Takeaways:

• Saving up to buy a car involves planning and adjusting your spending habits.
• How much money you’ll need to save depends on whether you’re paying cash for the car or making a down payment on a car loan.
• Saving up for a down payment makes your car loan smaller and will mean lower monthly car payments in the future, including lower interest rates over the loan lifespan.
• To keep on track, consider setting up a separate account to save for a car.

Why Should You Save Money for a Car?

The more money you can put into the down payment, the less you’ll need to borrow and the lower your monthly payments will be. Having lower monthly payments will allow you to put more money into other obligations like mortgage or rent, credit card debt, or student loans.

On the other hand, a larger monthly payment might be challenging to afford if a financial emergency arises. And if you skip your car payment, you could fall behind on your car loan, which could result in auto loan default. That can, in turn, hurt your credit and ability to take out loans in the future.

How to Save Money for a Car

Here are a few tips to help you save money for a car:

Calculate Your Down Payment

Before heading to the dealership to buy a car, take time to calculate the down payment. That amount will depend on your financial situation and the kind of car you want. If you’re considering taking out a mortgage, many lenders require some money upfront, and the more you can put down, the lower the monthly payments will be and the less interest you’ll owe on the loan. You may want to save between 10 and 20 percent for your car down payment.

Have a Savings Account

Once you’ve decided how much to save, ensure you’re saving enough money every month to meet your goal.

• Start a dedicated car account: To avoid the temptation of spending savings meant for your car, it’s wise to create a separate car savings account. Some good options would be a savings account at a money-market mutual fund or at your bank. That way, you won’t risk losing money, and you could even earn a little interest.
• Make It Automatic: Arrange with the mutual fund, bank, or employer to regularly withdraw a specific amount from your paycheck to deposit into your car account. That way, you don’t have to think about it or get a chance to spend the money on something else.
• Contribute Any Spare Cash: If you receive a government stimulus check, bonus at work, a tax refund, or even a cash gift for your birthday, add it to your car account.

Determine the Trade-In Value of Your Current Vehicle

If you own a car, trading it in will give you more money to put into your new car. Some dealerships offer trade-in deals where they’ll buy your car and apply that money toward the down payment on the new car. It pays to calculate the value of your current car before finding out what the dealer determines it’s worth. That can help you negotiate with the dealer and get a fair price. You can use appraisal tools like Edmunds and Kelley Blue Book to calculate your car’s value. Alternatively, you might decide to sell your car privately instead of trading it in. However, that may take significantly more time since you’ll need to find the right buyer.

Consider Getting a Side Hustle

Getting a temporary side hustle can increase your income, which allows you to put more money away for your car. You can find opportunities to earn cash online, or you can consider starting a part-time job to get the money you need faster. Earning this extra cash can go a long way, giving you the chance to put more down, borrow less, and possibly lower your monthly payment.

Cut Out Extra Expenses

If your current budget doesn’t give you much room to save money for a car, evaluate your budget, and see where you can lower your expenses. That doesn’t necessarily mean you have to permanently go without something, but it could make sense to trim costs for a set period so you can save. For example, you may consider stopping using your credit card for certain purchases or try limiting your credit card spending to things like groceries and gas for a few months. You could also consider canceling your gym membership and hitting the pavement around the neighborhood for free instead.

Need Help Buying a Car? Consult the Pros!

You should choose a ride you want based on what you can afford, your preferences, and your timeline. You may need to develop a long-term plan to save up for a car, but if you have an immediate need for a car, you may have to adjust your plan and budget. By finding ways to save money and carefully tracking your spending, you can save money to make your new car payments affordable. And if you’re ready to buy a car, visit our dealership. We have tons of inventory, and we’ll help you find your dream car that suits your needs and budget.

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