How To Save Money For a Car: A Step-by-Step Savings Plan

To figure out how much to save each month for a car, Consumer Reports recommends aiming for at least 15% of the vehicle's price — or 20% to 25% if you can afford it. If you're financing, divide your savings goal by the number of months you have to save. Remember that buying a car also comes with expenses on top of the sticker price, like taxes, insurance and maintenance. Here's how to set a realistic savings goal, choose a timeline and build a monthly plan to get there.

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How Much Should You Save for a Car?

You can calculate how much to save for a car monthly using this simple formula:

(Down payment goal + extra costs) ÷ number of months = monthly savings target

Say you're buying a $20,000 car and want to make a 20% down payment, or $4,000. If you budget another $800 for taxes and other upfront costs, you'd need to save $4,800 total over 12 months.

($4,000 + $800) ÷ 12 months = $400 per month

The 20/4/10 rule can also help you check whether the car you're saving for fits your budget:

• 20% down: Make a down payment of around 20% of the vehicle's purchase price.

• Four-year loan: Finance the car for no more than four years to limit interest costs.

• 10% of income: Keep total monthly car expenses, including payments, insurance, gas and maintenance, below 10% of your gross monthly income.

The 20/4/10 rule is a general guideline, not a requirement. Ultimately, how much you should spend on a car depends on your budget and what you can comfortably afford.

How Do You Set a Car Savings Goal and Timeline?

To set your car savings goal, you'll need to research vehicle prices, then decide how you'll pay for your car and account for additional expenses. Here's what to consider:

• New vs. used car: Research prices for the vehicles you're considering. Used cars generally cost less upfront, though maintenance needs can vary.

• Cash vs. financing: If you're paying cash, save for the full purchase price, including taxes and fees. If you're financing, save for your down payment and other upfront costs. A bigger down payment means you will borrow less, which can reduce your monthly payments and how much interest you pay over time.

• Taxes and registration: Factor in sales tax, title fees, registration and any dealership charges.

• Insurance: Get quotes for the vehicles you're considering and check how much you'll need to pay upfront, whether you're paying monthly or for a longer policy term.

• Maintenance buffer: Set aside extra money for any immediate repairs or maintenance the car might need to be road-ready if you're buying used, as well as future upkeep.

Next, decide how long you want to save. If your car savings goal is $6,000, here's how much you'd need to save each month:

• 12 months: Save $500 per month.

• 24 months: Save $250 per month.

A shorter timeline means you’ll get your car sooner, but you’ll need to set aside more money each month. Stretching your savings goal over 24 months gives you more room in your budget.

The 50/30/20 budgeting rule can help you figure out how much you can afford to save. It suggests putting 50% of your take-home pay toward needs, 30% toward wants and 20% toward savings and debt payments.

Going back to the monthly savings formula from the previous section, the number of months you have to save determines how much to save each month. If your monthly target is too high, consider a less expensive car or give yourself more time to save.

How Can You Build a Monthly Car Savings Plan?

After setting your car savings goal and timeline, you can start putting money aside each month. 

Here are four ways to do it:

• Automate your car savings: Choose a savings account and schedule automatic transfers right after payday. Keep the money separate from your checking account to help you avoid spending it.

• Trade in or sell your current car: You can put the money from selling or trading in your current car toward your next down payment. Compare dealership offers with what you could get from a private sale, and account for any money you still owe on the car.

• Cut back on one nonessential expense: Look at how much you're spending on things like dining out, entertainment or subscriptions, and see where you can cut back. Put whatever you save each month toward your car fund.

• Where to keep your car savings: Consider a high-yield savings account or money market deposit account, where you can earn interest on your savings and still access the money when you need it.

You could also keep your car savings in a certificate of deposit (CD), but the catch is that many CDs charge an early withdrawal penalty, which makes them less practical if you're unsure when you'll need the money.

When comparing accounts, check the annual percentage yield (APY), fees, minimum balance requirements and any limits on withdrawals. Make sure the bank is FDIC-insured so your deposits are protected up to applicable coverage limits.

Final Take

To save for a car, start by estimating how much you'll need for a down payment and other upfront costs. Then, choose a timeline and divide your savings goal by the number of months you have to save.

Once you know your monthly target, set up automatic transfers to a dedicated savings account and adjust your budget as needed.

Even if you can't save hundreds of dollars each month, smaller contributions can add up over time. Start with what you can afford and build your car savings from there.

Key Terms

• Down payment: The upfront money you put toward a car's price, which lowers how much you borrow and the interest you pay.

• 20/4/10 rule: A buying guideline: put about 20% down, finance for no more than four years and keep total car costs under 10% of gross monthly income.

• Annual percentage yield (APY): The yearly rate a savings account pays, including compounding, and the figure to compare across accounts.

• High-yield savings account (HYSA): A savings account, usually from an online bank, that pays far more interest than a standard savings account.

• Money market account: A savings account that may offer check-writing or a debit card while still earning interest.

• Certificate of deposit (CD): A savings product that locks your money for a set term at a fixed rate and usually charges a penalty for early withdrawal.

• Federal Deposit Insurance Corporation (FDIC): The agency whose insurance protects bank deposits up to $250,000 per depositor, per bank, per ownership category.

Sources

• Consumer Financial Protection Bureau (CFPB): How does a down payment affect my auto loan?

• CFPB: Auto loans key terms

• FDIC: Why and How to Know What's FDIC-Insured and What Isn't

• Consumer Reports: How to Buy a New Car in Today's Challenging, High-Priced Market

• Edmunds: Guide for First-Time Car Buyers

Parts of this article were created with AI assistance. Our editors reviewed, fact-checked and edited the final version.