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Out With the Old, in With the New: How To Save Money for a Car

Marc Skirvin
Marc Skirvin

What's in this Article

Buying a car is one of the most expensive and stressful processes many of us regularly go through. Believe it or not, over 17 million new passenger vehicles are sold each year in the US, and each is some of the largest purchases of those owners’ lives.

Unfortunately, the prices are only increasing, costing an average of $40,000 for a new car for the first time. Luckily, there are ways to save. Let’s talk about some tips on how to save money for a car in 2022.

How To Save Money For a Car

First, you want to determine if you need a new car. Sometimes, it can pay off to simply buy a few parts from a junkyard and fix your vehicle, and sometimes it just isn’t worth it.

However, if you know you’re ready to buy a new car, then here’s how to start saving for it.

Set a Savings Goal

Savings goals are important to help visualize your progress and see how far away you are from your goal. To determine how much you need to save, you will have to understand what kind of down payment you want to spend.

Assuming you have decent credit, you should be able to get an auto loan for the majority of cars. As long as you ensure that you can afford the monthly payments, then this shouldn’t be a problem. Keep in mind, the average car payment for a new car is $609 and $465 for used cars.

However, there are still plenty of cars available for less, and you can always lower your monthly payment with a larger downpayment. So, how much do you want to save for a downpayment?

Well, once you have an idea of the car you want, as well as the average price, you can divide it by 10%, 20%, 50%, or whatever you want to put down.

Let’s say you want a 2017 Subaru Forester in good condition, and you determine that the average cost is around $17,000 at the time we write this. Well, if you want to use a 5-year auto loan, then putting down $3,400 would cover 20% of the total.

With an interest rate of 2.49% and $400 in fees, you’ll have a total loan of $14,388, making your payment $239.80 for 60 months. However, if you only put down 10% (with all else equal) your auto loan will be $268.01 every month.

Remember, every $1,000 you put down upfront will save you $20 on a monthly payment for a 5-year loan. Consider how much you want to put down at the beginning.

Set a Budget

Next, it doesn’t hurt to set a time limit. When do you want to buy your next car? Well, this will help you set the basis for your budget.

Simply determine when you want your new car, how much you need to save, and divide your total savings by the number of weeks (or months) you have until your deadline. From there, you will know your incremental savings goals.

Moreover, a good structure for a budget is following the 50/30/20 rule, where 50% of your budget goes to necessities, 30% goes to things you want, and 20% goes to savings. If you manage to get your “needs” under 50%, add the extra amount to your savings and continue to keep your “wants” under 30%.

Look over your monthly credit card or bank statement and determine where that money is going. If you’re spending more than 30% on subscriptions, entertainment, shopping, going out to eat, getting your favorite coffee, or other luxuries of your choice, then it’s time to cut back.

To make the savings portion even easier on yourself, try automating 20% (or more) into a separate account that you don’t touch. Pick a day of the week or month to check your progress and see if you’re on track. If not, consider making some small sacrifices.

Also, it’s handy to hold onto this budget if you don’t currently have an auto loan, as it will help you adjust to it if you need to take on a new monthly expense to pay for your car. While that’s far from the only reason to set a budget, it will be immediately beneficial to you.

Use Your Current Vehicle

You can easily boost your savings by trading in, selling, or junking your current vehicle (if you have one). You would be surprised how much you can earn on the going rate for junk cars.

Factor this into your savings goals ahead of time, even if you’re waiting to get rid of your car. Once you have an offer for your car, subtract it from the total savings goals.

Essentially, if you want $6,000 to buy an older, used car in full, and you get a $1,500 offer for your current vehicle, then your new savings goal is $4,500.

Keep Your Credit Up

If you’re reading this and you don’t need a new car for at least a few months, then we strongly suggest working to improve your credit. You could easily save a few hundred dollars on your vehicle purchase by improving your credit score.

While there isn’t too much you can do in a short time, we strongly suggest paying off existing credit card balances, as they tend to have very high-interest rates. Also, opening a new line of credit may make sense if your credit mix is lacking. It depends entirely on your financial situation.

Remember Your “Why”

When you’re budgeting, it’s always important to have a “why”. In this case, it’s a car.

Remind yourself of why you want that car. How much easier will it be to get to work, stop worrying about your vehicle breaking down, not worrying about public transportation, and more? 

Also, think of how much freedom you will have on your days off. If you want to go on a road trip, drive your friends around, or go to a new place that’s off the beaten path, you’ll be able to.

Whatever your motivation is, write it down and remember it. Remember, you are 42% more likely to achieve goals that are written down!

Shop Wisely

The easiest way to save money on a car is not by boosting your credit or shopping for loans, it’s by choosing the right car. You want a car that won’t break the bank upfront or at any point in the next few years.

Luckily, that isn’t a pipe dream. Here are some tips for buying a new car that will help you save money.

Choose the Right Car

The most important decision you will make is the car itself. You want a car that fits your needs, has a good reputation, is in good condition, and fits your budget. Here’s how to start.

Type of Car

Do you have a family? Do you drive on dirt roads often? Do you live in an area with a lot of snow?

If you said yes to any of those, a Toyota Corolla may not do it for you. These are just a few questions to ask yourself to determine the type of car you need. If you need 4WD, more legroom, large storage space, fewer emissions, or anything else, then factor this into your decision.

However, if you’re just looking for a car to get you from one place to another in a city or suburb, then maybe a Toyota Corolla would be perfect for you! If a small sedan can get the job done, you may save a lot of money.

Figuring out your needs early on and doing some research could help you save big or simply get the car of your dreams for the right price.

Condition

When shopping for cars, you want to determine the condition of the vehicle. A lot of this will depend on your preferences, as you could save some money with some slight body damage without harming the integrity of the vehicle.

However, you don’t want to buy a car that’s going to break down at any moment. It makes more financial sense to buy a $15,000 vehicle that will last for five to eight years than it would to buy a $4,000 vehicle that lasts for one.

Look through the history of the vehicle and see if there were any accidents, if maintenance was done on time, any major repairs, or anything else. Of course, you won’t have to worry about a new vehicle, but you could save money on a used vehicle.

Also, it’s best to do some research on the car before buying it. For example, we mentioned the Toyota Corolla, which has a reputation of lasting for a long, long time without major problems. Now, that isn’t the only example, so run a quick search online of the year, make, and model for specific info.

Budget

Lastly, you want the car to fit your budget. If you are having trouble finding the right vehicle at a dealership, you don’t want a high monthly payment, or you are comfortable downsizing, then take the time to weigh your options.

Remember, dealerships aren’t the only paves that sell cars, they just tend to be the most convenient. However, that convenience always comes at a price.

It doesn’t hurt to take your time with the purchase, as long as you have another means of transportation in the meantime. Buying a car is a big commitment that will affect the next several years of your life, so don’t rush!

Choose the Right Year

A vehicle may have a solid reputation, but there are variances between annual models. If you’ve heard great things about a specific make or model, it doesn’t hurt to look into the specific year you’re looking to purchase.

More importantly, you want to find the sweet spot between too old and too new. A vehicle from 2000 may fit your needs on paper, but will it last you for very long? Also, do you need to spend all that extra money to buy a brand new car?

Remember, the largest price decrease on a vehicle comes in the first two years without sacrificing much value. Buying a car that’s between two and five years old likely means you won’t sacrifice much in the way of quality while still saving big on the purchase.

Choose the Right Dealership

Finally, you want to buy your vehicle from a reputable seller that offers quality cars for the right price. Too many auto shops take people for a ride and charge them extra for things they don’t need.

Also, you don’t even need to go to the dealer if you don’t want to. We’ve been talking about saving money for a downpayment, but buying a car in full will save you from having that payment lingering over your head for the next five years.

Fortunately, there are still pick-and-pull junkyards available that offer salvageable vehicles at great prices. The best part is that you can easily trade-in your old vehicle for a reasonable price and save big. With a little bit of savings and some minor repairs from trusted professionals, you can buy the car of your dreams in no time. 

Drive Off Today

Now that you know the best way to save money for a car, there’s no time like the present to get the car of your dreams. Remember, with the right planning, you won’t even have to worry about an expensive car loan!

Not sure what to do with your current car? Let us buy it! Call us right now at 1-855-922-3095

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About the Author

Marc
Marc

Marc is the Co-Founder of Cash Auto Salvage and Director of daily operations. He retired from a leading Internet Marketing company in 2013 and has been involved in the automotive industry ever since.

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