Are you wondering how to save money for a car? These five simple steps will walk you through how to save for a car quickly and easily.
One of the biggest purchases that most people make is their vehicle. Many times, people are faced with taking out a loan to purchase a vehicle, but there is no reason to pay interest for a car that will go down in value.
You can easily save more money by saving up and paying cash.
After learning about how to save money for a car, you’ll be all set with the tools for purchasing a vehicle of your choosing with cash.
This post is all about how to save money for a car and seven simple steps to get you there quickly and easily.
Table of Contents
1. Decide on what type of car
Step one is to decide what type of car you want and you can save the money for. There are many options available at varying prices, so this is a crucial step.
One consideration is if you want to purchase a new or a used car. There are several pros and cons to each type of purchase.
New Car
Pros of buying a new car:
- New car smell
- Longer time before repairs needed
- Low mileage
Cons of buying a new car:
- Will cost more money
- Will pay more
- Depreciates faster
- Will pay more for a vehicle that will lose value faster than a used car
- Requires longer to save for than a used car
Used Car
Pros to buying a used car:
- Depreciation value
- Lower insurance rates
- Can get more options for a lower price
Cons to buying a used car:
- Reliability may be reduced depending on the make, age and mileage of the vehicle
- Choice may be more limited
If you’ve never purchased a used one before, you might check out this used car buyers guide.
Dave Ramsey recommends not purchasing a new car until you have a million-dollar net worth, because the value depreciates. Whether you agree or disagree with this suggestion, keep in mind that a car will never be worth as much as it is brand new.
2. Decide how much you want to spend
3. Consider other expenses
There are many expenses to owning a vehicle besides just the purchase price. Being able to afford these other expenses could directly impact how to save money for a car.
Some other expenses to consider include:
Tags, Tax, and Title
Every time you buy a vehicle, whether it’s new or used, you will be required to pay for the tags, taxes, and title.
You can estimate your tax and title with this calculator.
Car Insurance
The amount for car insurance can vary greatly depending on your state, the value of the vehicle, your driving record, and any discounts that you might qualify for, such as good student discounts.
Call your insurer before purchasing to get an estimate of your monthly premiums to be sure you can afford the insurance for that vehicle.
Regular Maintenance
So types of regular maintenance that you will want to budget for include oil changes, tire rotations, and air filter changes. Every few years, you will also need to buy new tires and brakes.
Future Repairs
At some point in the life of any vehicle, it will require repairs. Anything from needing new spark plugs to a new transmission.
It is wise to keep in mind the need for future repairs before your purchase to be prepared. Because it will probably be a while before you need these types of repairs, you should have plenty of time to save up for them.
4. Find out how much your current car is worth for sale or trade in
One of my favorite tools for determining car value is Kelley Blue Book. You can go to kbb.com and put in all of your information about the vehicle you currently have, or there is an app. It will give you a very accurate picture of how much you could get on trade-in or sell.
Be sure that you know the year, make, and model of your current vehicle. You should also know what style your car is, such as limited, sport, etc. The program will ask you for the number of miles on your car and all of the features that your vehicle has.
Once you’ve put all of this information in, you can see the value of your vehicle based on the overall condition. It will give you an approximate value for Fair, Good, and Excellent conditions.
5. Create a car savings account
It will be very helpful if you create a special savings account specifically for your car fund. If you’re planning on saving for a year or two, you can open a money market account. It will grow very little, but it will earn a small amount of interest.
If you are going to be funding your purchase over less than a year, then just opening a regular savings account will be sufficient.
By using a separate savings account, instead of keeping cash, you are more likely to be successful with your savings. It’s easy to go remove some cash for pizza or to spend money out of a checking account with a debit card.
By using a savings account, you have to actually go to the bank to remove the money, and this sets you up for success. If you are looking for successful ways on how to save money for a car, this one can be a make or break.
6. Fund your savings account
I highly recommend automating your savings, by auto-deducting the amount you are saving each month from your check. By automating, you cut the risk of spending that money on something else each month.
Many banks now have the option of either scheduling a bill payment or a transfer to a separate account on a given date each month. Set this to come out the day you get paid or the day after.
[RELATED POST: Save Money Plan: 7 Clever Ways to Save Money]
7. Make saving fun!
There are several ways to take the drudgery out of saving money. There are many ways that you can make saving money for car fun or gamify your saving.
- Use a Savings Tracker
- Do a No Spend Challenge
- Do a 26 Week or 52 Week Savings Challenge
- Reward yourself at milestones
- Join a financial community in person or online
These are all great ways to stay motivated on your savings journey for how to save money for a car. Use one or more of these ways for ultimate success.
Reasons Not to Use Credit
There can also be many reasons that purchasing a car with credit can be impossible or a really poor choice. If any of these apply to you, you should avoid purchasing a vehicle with credit:
Credit score under 670
According to Experian, having a credit score under 670 can cause your interest rate to be incredibly high, which would cause you to pay an unreasonable amount of extra money each month. Some people can end up paying upwards of 15.99% in interest.
Even if you have a credit score between 670 and 739, your interest rate may still cause you to pay double the amount in interest over the amount of the loan.
Debt-Free or FIRE Lifestyle
After the struggles and job losses that came with the lockdowns of 2020 and 2021, many more people have adopted a debt-free or FIRE (Financially Independent Retire Early) lifestyle.
To be free from the struggles to continue paying on debt when hard times hit, many are opting out of using debt to make purchases.
Bible Believer
While the Bible does not say that it is a sin to use debt, it does state many times that we should not be in debt to anyone. Here are some bible verses that illustrate that point:
”The rich rules over the poor, and the borrow is slave to the lender.” -Proverbs 22:7 ESV
“Owe no one anything, except to love each other, for the one who loves another has fulfilled the law.” -Romans 13:8 ESV
“Be not one of those who give pledges, who put up security for debts. If you have nothing with which to pay, why should your bed be taken from under you?” -Proverbs 22:26-27 ESV
Benefits to Paying Cash for a Car
There are many fantastic reasons to purchase your next vehicle with cash and avoid the headaches and expense of credit. Here are just a few:
Flexibility
Buying a car with cash gives you a great deal of flexibility, regarding what vehicle you purchase. You are no longer limited to what a loan company says you are eligible for.
Your savings is in your hands, having the ability to save as little or as much as you’d like for your next vehicle.
No Interest
By paying cash, you are guaranteed to pay zero interest throughout the life of the car. Instead of paying several thousands of dollars extra to a loan company, you can pay that money to yourself.
Pay Yourself
Paying cash for a car allows you to have great flexibility with your money. Instead of paying a monthly car payment, you can pay yourself by investing that money in long-term savings or investments.
Using the benefits of compound interest, you can grow the amount of money you would have been paying for your car payment. Several years down the road, your investment will have grown exponentially, while your car will have gone down in value.
Freedom
As I mentioned above, many people are seeking a debt-free or FIRE lifestyle, and to do that, you must eliminate things that hold you back. Having debt is one of those things.
By eliminating the debt that you could use purchasing a car, you gain the freedom of using your money the way you want, having the vehicle you want, and being able to make decisions about your life that you might not have been able to make before.
My husband was recently able to quit a difficult job and pursue a new career, and we would have never been able to do that if we were still weighed down by payments. I highly recommend making following the steps below on how to save money for a car, instead of using credit.
Practically Murphy-proof
When your vehicle is paid for in full, you don’t have to worry when Murphy strikes with a job loss, medical emergency, or other unexpected events.
While there will still be issues that arise running your vehicle, worrying about making a car payment during an emergency will not be one of them.
After following these seven simple steps for how to save money for a car, you will be set up for successful savings.
I hope these steps on how to save money for a car have been helpful to you in your journey to meet your money-saving goals.
Do you have other tips for how to save money for a car? I’d love for you to share them in a comment below!
