Everything You Need to Know About Saving Money for a Car

Depending on where you live, what you do, and your lifestyle needs, a car may be a necessity. Having a car adds convenience to your life, but it also adds a new level of financial responsibility. 

If you are looking to own a car, you’ve likely tried to map out how to save. We can walk you through the first steps, and some additional ones you might take, to help you get on the road in no time.

Decide on how much you want to spend

The cost of owning a vehicle can range depending on a number of factors. 

For example, one of the first decisions you may have to make is whether you want to purchase a new or used car. This choice alone can impact other areas of spending on your future car. New cars, for example, often include short-term warranties in their sticker price and may receive lower interest rates than used cars. 

Used cars are not always cheaper than new cars, so determining how much you can afford to spend long-term in either scenario can help you budget how much you should be saving.

Consider mileage, maintenance, and insurance when you select a model and make. So, while it may seem like you’re getting a deal on a used luxury car, remember that these vehicles tend to have higher insurance rates and poor gas mileage. 

As you do some preliminary research, keep in mind that most sites offer estimates about this information alongside the annual payment on the car itself. 

The downpayment you make will affect your payments, so remember to factor that into your decision. 

An old rule of thumb for car down payments suggests 20%, though according to Edmunds, the national average for down payments is a little more than half of that. 

Having a high down payment can serve well because it may create opportunities for lower interest rates and will reduce the amount of your monthly payments. If you anticipate monthly payments posing a difficulty, it may be worthwhile to save up for a more substantial down payment on your car. 

There is no hard and fast rule about how much to put down on a car, so you should carefully consider what works best for you. 

Interest rates also affect total payment across time. Different dealerships and banks offer different financing terms, so it’s worthwhile to do some shopping around. Remember that the total cost of your car with interest is not the same as the sticker price.

Other expenses including registration fees, sales taxes, and other dealership fees are not included in the sticker price, either. Be sure to ask your dealer to discuss those details with you. 

You may be able to add towards your downpayment if you are trading in an older car for a new car, so remember to factor that into your savings plan. Some people have luck earning more from private sales than trade-ins, so keep your options open. 

Once you’ve decided on which car you’ll be saving for, after accounting for the aforementioned costs, you can start to research what your downpayment and monthly payments will look like. 

Check your credit score

Your credit score will affect the loan that you receive, as low credit scores tend to receive loans with higher interest rates. 

Before making any large purchase that requires a loan, you should check your credit score. You can check your credit score online for free through SaverLife SaverPerks. We offer a couple of credit-related SaverPerks. Sign up for SaverLife to take advantage of our member-only SaverPerks. 

If it turns out that your credit score is lower than what you were hoping for, and you can wait to make your purchase, you may try to improve your score before applying for a loan. It could save you money on interest over time. 

Though it may take some time, improving your credit score may be simpler than you think. You can start by: 

  • Paying bills on time. Payment history accounts for 35% of your credit score. 
  • Avoiding excessive credit use. The balance you have on your credit card bills should be less than 30% of your credit limit, though the lower it is, the better. Anything below 6% allows you to maximize your credit score.
  • If you don’t have a credit card yet, opening one and keeping up with the payments in a timely manner can kickstart a healthy credit score. 

If you need more tips and motivation to revitalize your credit score, try signing up for SaverLife. 

Create a budget to save for your car

Being aware of spending will help you put away money for a downpayment and keep up with monthly payments. The best way to do this is by creating a sustainable budget.

One recommended guideline is to set aside 50% of your monthly income for necessities such as rent, utilities, food, insurance, and car payments (try factoring in a future car payment to see if it is doable). You can set aside 30% of your income toward things that are nice but not necessary. This includes eating out, weekend trips, and shopping. Set the remaining 20% aside in a savings account, allocating some of this for a new car purchase.

Using a budget involves tracking expenses. It helps determine if you are spending more than you earn so you can make lifestyle adjustments. You may choose to spend less, earn more, or do both (this is the fastest way to save). Passive income and freelance work are great ways to earn more flexibly. 

Remember that the initial cost of the car includes additional expenses, such as maintenance, gas, and insurance. 

If you recently paid off a car loan, try saving by setting aside the money you’d have paid on your loan for your new car. 

Car insurance tips for new owners

You’ll have to add car insurance expenses when figuring out how much to budget for a new car.

Car insurance can be expensive for the first six months if this is your first time purchasing an automobile. Though, there are some ways to save. 

Some insurance companies offer bundles that act as discounts, so check with your other insurance providers before signing up somewhere new.

We offer multiple SaverPerks that allow our SaverLife members to compare auto insurance rates and get the best deals for free! Sign up for SaverLife to access our SaverPerks. 

If you are a student, or if the car you are purchasing is for a driving student, you can save on insurance rates with “good grade” discounts. Veterans and service members are also often eligible for discounts. 

Remember to shop around for the best rate, as insurance companies are often competitive with one another.

Make your savings goal specific

Come up with exact timeframes and amounts for your goal to save up for a new car. 

For example, you may choose to set aside $375 a month for a year to save a total of $4,500. Motivate yourself to save with small rewards. 

Motivation and rewards will make it easier for you to push through. Remind yourself why you are saving to keep you on track. Remember that your goal should be sustainable and achievable. Creating an overwhelming savings goal won’t help you get ahead. 

Open a Savings Account

If you’re saving up for a new car, you may decide to open a savings account if you don’t already have one. A credit union is a good option since they don’t charge service fees or require a minimum balance.

If you can, open a savings account that only holds the money you’ll use to buy your new vehicle. That way, the money you are saving stays away from everyday purchases or other spending.  

Try to create a scheduled account transfer so that savings are consistent and automatic. 

Figure out where you can cutback

Try to prioritize saving over spending by determining what you can skip each week. Some easy ways to save include limiting your spending on:

  • Dining out 
  • Coffee stops
  • Spending on drinks out 
  • Using rideshare apps 

Make saving more fun by being resourceful. You can try new recipes, explore your local library, or carpool with friends to help cut back on everyday expenses. 

Sell your old car or trade it in

If you are looking to replace a car you already own, selling your car to save for a new one might mean putting away thousands towards your downpayment. 

Though a dealer trade-in is convenient, some folks earn the most by selling privately. It’s fairly easy to list your car online through social media or online marketplaces. 

Before selling your car privately, you’ll need to find out how much your vehicle is worth. Here are a few resources you can use to do that:

  • Kelley Blue Book
  • NADA Guides
  • Autotrader.com

If your car isn’t worth as much as you thought, consider trading it in at a dealership instead. Once you decide to sell your vehicle, you’ll need to gather all the necessary documents. Each state has its own documentation requirements when finalizing a transaction. However, be prepared to have the title, which you’ll sign over to the new owner.

You’ll also typically need maintenance records, so the individual buying your car can see how well you take care of it. If you don’t have these records, you can often get them from the mechanic who performed routine maintenance on your vehicle.

You might also need some or all of the following documents:

  • Bill of sale
  • Release of Liability
  • Warranty documents
  • As-is documentation

Your new car is just your first stop in saving 

At SaverLife, we have a mission to help working families develop financial habits that’ll last a lifetime, all while regarding you for healthy saving habits. 

See all that we have to offer by checking out our site today!