How to save for a car on any budget
A car is more than a hunk of metal and rubber. For most of us, it's one of the most expensive things we'll ever own.
If you can't walk into a car dealership and walk out with the keys to your new ride, you're not alone. Most families need time to come up with funds for a car, even if it's used.
But anyone, no matter their budget, can learn how to save for a car. Follow these steps to get started.
How Much Should You Save?
Cars are expensive. In 2020, an average light vehicle cost more than $38,000. Most of us don’t have that money sitting in our bank account, so we need to start saving. But how much do you need?
Determine the car you want, and find out how much it costs via the Edmunds TMV pricing page. Dealers may charge you more than this assessment of market value. But if you're a great negotiator, you could also pay less than the car is worth.
Use the TMV as your savings starting point. Then, make three critical decisions:
- Down payment size. To finance a used car, you're typically asked to put 10% of the car's value down at the time of purchase. This money shows the lender you're serious about your debt.
Buy a new car, and you might need a 20% down payment. Put down more than expected, and you'll reduce the size of your debt.
- Financing length. The size of your monthly payment dictates the length of your loan. Shorter loan lengths mean bigger savings in the long run.
For example, shaving just a year off your loan could save you about $1,000. But you might need more in backup savings, just to ensure you're covered if an emergency happens and your car payment takes up all of your budget.
- Additional options. Dealerships may offer you repair packages and other perks as you prepare to sign your loan documents. Each one of these add-ons comes with a fee. If you know you want them, plan for them now.
Follow these steps, and you could have a good savings target. Here’s a quick example:
Used car price: $4,000
- 10% down payment: $400 savings needed
- 20% down payment: $800 savings needed
- No financing at all: $4,000 savings needed
Search Your Budget for Hidden Surprises
The less you borrow, the less you'll pay each month. Smaller loans also mean less money spent on interest payments. Look for that money in your budget.
Keep track of everything you spend in one month, including fees from:
Our tools make tracking your expenses really easy. Use our mobile banking tools, and we'll give you insights on how much you spend.
Then dig into the data for items you can cut. If you're like many Americans, you spend hundreds each quarter on restaurant meals. Cook at home instead.
If eating out isn’t your thing, a love of shoes or toys for the kids could eat up your available cash.
Rein in your spending impulses when you can and cut back on budget items that hog up your dollars.
How to Save for a Car Automatically
Putting money aside takes discipline unless you let technology do the hard work for you.
Use tools like our Savings Pods that make savings easy. With savings pods, you can automate savings, save up for specific purchases and if you enable round-ups, when you make a purchase, it’s rounded up to the nearest dollar, and that amount goes into your designated pod as well. These funds are then unavailable in the spending balance in your Current account.
It's tempting to move those funds back into your spending balance when you need a treat or pick-me-up. But remember that you're saving for an important purchase. Don't fall back on bad habits. Instead, keep the money where it is right now and move into your account when you’ve reached your savings goal and you’re ready to make that purchase.
Create a Car-Saving Timeline
When will you have enough funds to buy the car of your dreams? A firm deadline could motivate you to stay on track with savings even when times are tough.
Identify how much you will save each month via budget trims and automatic deposits. Then, determine how much you have in savings now. Then, it's time for a bit of math.
Image recommendation: Let’s make this equation into an image:
(Car price - current savings)/monthly amount you can save each month = months until new car
Write Down Your Car Goals
Just one American household in three prepares a monthly budget. You could be one of them. A budget is a critical part of sticking to a savings plan and you can create one directly in the Current app.
Write down how much you'll set aside, and write down where that money will come from. If you're tempted to deviate from the plan, even once, refer to your notes and remind yourself of what you're working for.
When you can search online used car listings or enter a dealership, ready to buy the car you want at terms you dictate, all of your hard work will be worthwhile.
We Can Help You Grow
At Current, we believe everyone deserves financial security. And we've built up an awesome suite of tools to make that possible.
Get paid up to 2 days faster with Current, get fee-free overdraft, earn cash back, have access to free ATMs, and enjoy instant refunds of gas holds with our Premium Account. Use our tools to help you save up for the things you want without hassles. We'd love to help you get started.
Banking services provided by Choice Financial Group, Member FDIC. The Current Visa Debit Card is issued by Choice Financial Group pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted.
Average New-Vehicle Prices Up 2 Percent Year-Over-Year in July 2020, According to Kelley Blue Book. (August 2020). PR Newswire.
Edmunds TMV. Edmunds.
This Is Exactly How Much Car Prices Have Gone Up. (September 2020). Market Watch.
How to Negotiate Car Prices. (July 2019). Edmunds.
How Much Is a Down Payment on a Car? Car and Driver.
One in Three Americans Prepare a Detailed Household Budget. (June 2013). Gallup.
Average credit score: How do you compare?
Credit scores tend to rise with age. But younger people may be more aware of their credit standing...
Ways to manage your money better
Money management tips can help you get control over what you have and what you spend each month....