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How to save up for a car

Five steps to save up for a used or new car.

The more money you have upfront to pay for your car, the less you’ll have to borrow — saving you money in the long run. Whether it’s for a used or new car, here’s how to save up for a car in five steps.

1. Determine what you can afford and set a goal

Determine how much you want to spend on a car and check out makes and models that fit your budget. Then, figure out how much you want to save for a down payment and what you can afford to borrow. Most experts recommend saving up at least 20% for a downpayment for a new vehicle and 10% for a used vehicle.

A budgeting software is great for this step because it can help you manage your income and expenses and track your savings progress.

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. Decide if you’ll sell or trade in your current vehicle

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 up to 20% more from a personal sale.

4. 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. It helps to consider these deposits a mandatory bill to help keep you on track and focused on saving.

If you want to earn a few extra bucks, consider using your skills to start a side hustle that suits your talents.

5. Pick a savings account and make regular contributions

Find a savings account that works for you by considering how much you have to open the account, how much you plan to save and how easily you can access your money. Savings accounts like Ally Online Savings and Chime Savings offer automatic transfers and round-up services to help you reach your goal without much thought.

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.

How much should I save for a car?

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 is $38,060, according to an April 2020 analysis by Kelley Blue Book.

Used car prices typically range between $11,000 and $20,000. Like anything else, how much you’ll spend depends on what you want and what you can afford. Here’s an average of what you could pay for a car based on how much you can save.

New cars:

Cost of vehicleInterestMonthly payment for 60 monthsTotal cost
If saving$38,060Earn 2%$574$38,060
If borrowing$38,060Pay 4.21%$705$42,273

Used cars:

Cost of vehicleInterestMonthly payment for 60 monthsTotal cost
If saving$20,000Earn 2%$317$20,000
If borrowing$20,000Pay 6.96%$396$23,739

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 are only averages. The actual costs will depend upon a number of factors such as your age, where you live, what kind of car you drive and your driving record:

  • Car insurance: $1,426 per year
  • Maintenance: $1,000 per year
  • Gas: $1,500 per year

Compare accounts to help you save for a car

When trying to save money for a car, avoid savings accounts with fees and compare key features such as eligibility criteria, rewards and bonuses, special programs and accessibility to your funds.

Name Product Annual percentage yield (APY) Fee Minimum deposit to open
Aspiration Spend & Save Account
Finder Rating: 3.8 / 5: ★★★★★
Aspiration Spend & Save Account

1.00% on $0 to $10,000 but you’ll need to be enrolled in Aspiration Plus and make at least $1,000 in debit card purchases a month
$0 per month or $15 per month for Aspiration Plus ($12.50 per month if you pay annually)
Deposits are fossil fuel-free and insured by the FDIC. Enjoy a spend and save combo account with unlimited cash back rewards and a $100 bonus when you spend $1,000 in your first 60 days.
Axos Bank High Yield Savings
Finder Rating: 4 / 5: ★★★★★
Axos Bank High Yield Savings

0.61% on $0 to $24,999
0.25% on $25,000 to $99,999
0.15% on $100,000+
No monthly maintenance fees. No minimum balance requirements. Interest compounded daily.
Chime Savings
Finder Rating: 4.6 / 5: ★★★★★
Chime Savings
Grow your savings automatically with recurring transfers, round-ups on debit card purchases and 0.5% APY.
Discover Online Savings Account
Finder Rating: 4.6 / 5: ★★★★★
Discover Online Savings Account
Take advantage of a high-interest online savings account with no fees, no minimums and more.
UFB Direct High Yield Savings
Finder Rating: 3.6 / 5: ★★★★★
UFB Direct High Yield Savings
Earn an APY when your balance is higher than $10,000 with this no-monthly-fee savings account.

Compare up to 4 providers

Bottom line

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.

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