How to Save for a Car

Quick Answer

Saving for a car involves determining how much you can afford, setting a savings goal, adjusting your budget to meet that goal and automating your savings.

Shot of a driver's hands on a steering wheel, driving on a road at sunset.

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Saving up a large down payment for a car can reduce the amount you need to borrow as well as the size of your monthly loan payments. And if you're able to sock away enough money to buy a car in full, you can avoid loan payments—and the interest charges that accompany them—entirely.

Setting money aside for a car might sound like a difficult task, but it doesn't have to be. Save for a car by following these seven steps.

1. Decide to Lease or Purchase

The first car-buying decision to make is whether you should lease a car, finance a car or buy a car outright since it will impact how much you need to save. Here's an overview of how each one works, along with pros and cons.

Leasing vs. Buying a Car
Lease a Car Finance a Car Buy a Car in Cash
How it works

You make monthly payments to use a car for a specified timeframe

You take out a loan to purchase a car and pay interest on the amount you borrow You pay for the car outright in cash and have no loan or payments

Lease payments are often lower than car loan payments

You own the car outright once the loan is paid off You have no monthly loan payment or financing fees
Disadvantages Monthly payments don't automatically result in ownership or equity in the car Monthly payments might be higher than if you leased the car It can take longer to save up the amount to buy a car in full

2. Calculate What You Can Afford

If you decide to buy in cash, check your savings to determine how much you can afford. If you're going to lease or finance a car, the general rule of thumb is to spend around 10% to 15% of your net income (income after tax and deductions) on transportation costs. So, take-home pay of $5,000 per month would equal a transportation budget of $500 to $750 for lease or loan payments and other related expenses, such as insurance, gas, maintenance and repairs.

Using that ballpark monthly payment figure, you can start looking at car types to determine which ones you can afford payments for and what down payment you will need. When shopping for cars, be sure to factor in the cost of tax, title and fees because these charges will likely be tacked onto the listed price.

Fortunately, many online resources offer a payment calculator where you can choose a car and input a down payment amount to estimate payments based on the car price and additional fees.

3. Factor in Other Car Expenses

While considering a car price you can afford, also calculate how insurance and gas will fit into your long-term budget. Gas costs can vary based on the type of fuel a car needs and how much fuel the car takes. Car insurance rates can also vary based on factors like the type of car you buy, your driving history, where you live and your gender.

Shopping around with at least three insurance companies can help you compare rates and driver discounts. For example, some insurance companies offer discounts if you bundle multiple types of policies, set up autopay or use your car infrequently. Using Experian's car insurance comparison tool, you can quickly compare auto insurance rates from multiple providers.

4. Set a Monthly Savings Goal

Next, take the amount you want to have for the purchase and turn it into a monthly savings goal based on your car-buying timeline. Do this by dividing your savings goal by the number of months you have to save. For example, if you want to save up $3,000 to buy a car in three months, you would need to save $1,000 per month to make it happen.

If you have the flexibility to do so, extending your car-buying timeline can make it easier to save up a larger sum. The benefit of putting down a larger amount is that it can reduce your monthly loan payment and long-term interest costs.

5. Adjust Your Household Budget

Consider revisiting your household budget to make changes to accommodate your new car savings goal. Meeting a $3,000 goal in three months, for example, could mean cutting back to a bare-bones budget to eliminate all entertainment spending and other nonessential bills temporarily.

If you don't already have one, now's a good time to create a budget. Reviewing your bank and credit card statements is a way to start pinpointing where you're currently spending extra money so you can reroute that cash to car savings. You could also try online or mobile budgeting websites and apps to keep track of your spending.

5. Open a Savings Account and Automate Savings Transfers

Set up a new savings account to stash away car money so you can monitor your progress separately from other savings. Opening a high-yield savings account is a way to secure a higher annual percentage yield (APY) on your funds, and every extra bit of interest earned can help you work toward meeting your car savings goal.

Many banks also offer recurring savings transfer tools where you can automate deposits into savings on a schedule, like weekly or monthly. Automating your savings is a smart way to grow your car fund without having to remember to make biweekly or monthly deposits. Your employer may even allow you to deposit your paycheck into multiple accounts so the money you want to set aside goes straight to your car fund.

6. Consider a Side Hustle

When funds are tight, earning more is a way to reach your financial goals faster. Think about what skills you possess and how they could be turned into an income source. If you get stuck thinking of a way to earn extra income, you can always turn to traditional side hustles like babysitting, dog walking or providing another service as a freelancer to top up your savings.

Sites like, Rover and TaskRabbit are marketplaces where you can connect with parents, pet owners and people who want to hire someone to complete tasks. Fiverr and Upwork are other freelancer marketplaces you could sign up for to find freelance jobs in fields like writing, graphic design, website design, transcription and more.

7. Improve Your Credit Score

Working on your credit while saving can help you land better auto loan rates and lower payments when it's time to borrow. Here are a few steps you could take to improve your score:

  • Review your credit report. Pull your credit reports from all three major consumer credit bureaus (Experian, TransUnion and Equifax) at Also consider signing up for a credit monitoring service such as Experian CreditWorksSM for regular, free access to your credit score and report as well as alerts when there are changes to your report.
  • Dispute credit report errors. When you pull your credit reports, confirm the information on all your credit accounts is correct. While rare, if you find errors on your credit reports, you have the right to file disputes with each credit bureau reporting the inaccurate information to have it corrected, updated or deleted.
  • Pay down credit card balances. Credit utilization is the percentage of your available revolving credit limits you're using and is one of the most important factors in your credit score. Reducing balances on your credit cards can lower your credit utilization and may increase your score.
  • Always make payments on time. The most important factor that affects your credit is payment history, so be sure to make all other loan and credit card payments on time leading up to your car purchase.

Stay the Course

Saving up a large amount for a car might not happen overnight, but with consistent saving, you can get the down payment you need to buy a car you afford. You also don't have to save alone: Using tools like automated transfers and budgeting apps are ways to reach your goal with less effort. Before you know it, you could be driving off the lot in a new ride.