Determine how much you want to spend on a car and check out makes and models that fit your budget. Figure out how much you want to have for a down payment and what you can afford to borrow.
2. Consider other car-related expenses
Beyond the cost of the vehicle, remember to put extra money aside for things like insurance, repairs and maintenance. How much you’ll pay for insurance depends on factors like your age, where you live, what you drive and your driving record.
3. Set a timeline
Set a purchase date and break down the total amount you want to save into monthly payments. Make sure the amount fits into your budget and won’t leave you strapped for cash. Try considering these savings deposits as a mandatory expense in your budget to help keep you on track and focused on saving.
4. Pick a savings account and make regular contributions.
How much you should save for a car largely depends on if you want to pay for it in full or take out a loan. The average cost of a new car was $39,851, according to a October 2019 Price Index report by autoTRADER.ca.
The same Price Index noted that the average price of a used car was $18,800. Like anything else, how much you’ll spend depends on what you’re looking for and what you can afford. Here’s an average of what you could pay for a car based on how much you can save or need to borrow.
Cost of vehicle
Monthly payment for 60 months
Cost of vehicle
Monthly payment for 60 months
Beyond the cost of the vehicle, you should also account for other expenses that will increase the amount you’ll need to save. Note that these values are only examples. The actual costs will depend upon a number of factors such as your age, where you live, what kind of car you drive, your driving record, and your driving habits:
Car insurance: $1,500 per year
Maintenance: $1,200 per year
Gas: $1,500 per year
Accounts to help you save for a car
When shopping around for a savings account, watch out for account fees. Compare key features such as eligibility criteria, rewards and bonuses, special programs and accessibility to your funds.
Tips on saving up for a car
Once you have a goal in mind, there are a number of ways you can save up for your purchase:
If you have debts or bills that you’ve paid off, consider rerouting the funds that were earmarked for them into your savings account. This way, you’ll save money that you might have spent elsewhere.
If your savings account offers it, set up automatic transfers or use a round-up service to make recurring, automatic contributions toward your goal.
If you already have a car, trading it in or selling it can help you get some extra cash for a new one. However, while trading it in to the dealer can be more convenient, you could get more from a personal sale.
Use your skills to start a side business that suits your talents to try and make a few extra bucks
Make saving for a car a little less daunting by starting early and setting goals. Once you’re ready to open an account, compare savings accounts to find a product that’s right for you.
Frequently asked questions
Yes, new car prices are almost always negotiable. Speak with your dealer before agreeing to buy.
Yes, all provinces and territories require that you have at least third party liability coverage. Check out the Insurance Bureau of Canada (IBC) to find out how different provinces and territories regulate car insurance.
Peter Carleton is a writer that covers banking and investing, breaking down what you need to know about where you put your money. When Peter's not thinking about cutting-edge banking apps and robo-advisors, he runs a creative agency and spends his spare time cooking or reading.
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