How to save for a car: A step-by-step guide

Written by

Karen Bennett,

Edited by

Kristen Kuchar,

Reviewed by

Emmanuel Nyame,

Expert verified

Published on March 11, 2025 | 6 min read

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Key takeaways

How much you’ll need to save for a car down payment depends on the price of the car and whether you plan to lease or buy it.
Before buying a car, consider the monthly payment amount as well as other expenses such as insurance and gasoline.
Based on when you plan to purchase the car, create a monthly savings plan and consider setting up automatic transfers to your savings account each paycheck.

Car prices have risen significantly over the past couple of years, with the average price of a new one reaching $48,641 in January 2025, according to Kelley Blue Book. Unless you have a pile of cash stashed away, you’ll likely need to create a car savings plan if you plan to buy a new car soon. The amount you need to save depends on the purchase price of the vehicle and if you’ll buy or lease it.

So, it’s vital to do your research to find a car that fits your needs and budget. And when you’re ready to move forward, these tips will help you develop an effective strategy to save up for a down payment.

Here’s what you need to do to jumpstart your car savings plan.

1. Decide whether to lease or buy

There are several factors to consider when deciding to lease or buy. Leasing a vehicle means you’ll pay for the ability to drive it for a set number of years before returning it to the dealership. Buying a car means you could own it outright after you’ve made the required number of payments to the lender or purchase it with saved money. Both options have their benefits and drawbacks.

Leasing vs. buying a car

	Advantages	Disadvantages
Leasing a car	May require little or no money up front Monthly payments are often lower than car loan payments Most manufacturers offer a warranty of three years or 36,000 miles	Fees may be charged if you go over a set mileage limit per year, or if you return the vehicle with wear and tear considered beyond average At the end of the lease, you do not own the car as you would with buying a car
Buying a car	Unlike with a lease, no mileage restrictions or fees for wear and tear Once you own the car and have paid off the balance, you no longer have a car payment Once your car is paid off, you can continue driving it, sell it or trade it in	Larger down payment and monthly payments are usually required Long-term maintenance costs can be high when the warranty runs out

2. Calculate your down payment

Before you head to the lot to buy a car, take the time to calculate your down payment. This amount will depend on your unique financial situation and the kind of car you want.

Many lenders require some money up front, and the more you can put down, the lower your monthly payments will be and the less interest you’ll owe.

If you’re seeking a newer car, some experts recommend putting down 20 percent. In the third quarter of 2024, the average down payment on a new vehicle was $6,619, according to Edmunds.

3. Determine what monthly payment you can afford

The average monthly payments on new vehicle loans and used vehicle loans in the second quarter of 2024 were $737 and $520, respectively, according to Experian.

It’s important to figure out what monthly payment will fit into your budget, factoring in all your other regular expenses, such as housing, groceries, gasoline and utilities, along with your saving goals, including saving for an emergency fund and retirement.

4. Consider additional costs

When considering what car to buy, don’t forget you’ll need to budget for the additional costs associated with vehicle ownership. These include:

Auto insurance: This often can be paid monthly, every six months or yearly. Know how much insurance your state requires you to carry, and choose coverages and limits you’re comfortable with.
Vehicle maintenance: Look for a car with maintenance costs within your means, and set aside money in your budget for this purpose. Some manufacturers conveniently include some maintenance visits in the purchase price of a car.
Gasoline: Fuel can be a big chunk of your monthly expenses, with the national average price at $3.08 per gallon as of March 11, 2025, according to AAA. National average gas prices will average $3.22 in 2025, according to GasBuddy projections. So while buying a car with efficient gas mileage can help you make fewer trips to the pump, it can also save you money.
Charging: If you’re considering buying an electric vehicle (EV), estimate how much you’ll spend for charging. Using a Level 2 charger to fully charge an EV at home can cost $6-$18 in electricity per charge, while using a public fast charger for a full charge can run you $20-$40 per charge, Bankrate found. A full charge can typically go for more than 200 miles.
Car registration: You will also have to pay to register your vehicle. The cost of this depends on your state and the type of vehicle.

5. Establish a savings plan

You may have a vague savings goal in mind, but it’s important to put a precise number on it. With the help of Bankrate’s auto down payment calculator, you can determine how much you’ll need to save every month.

Once you have a number in mind, here are some ways to help you set aside the money you’ll need:

Decide how much to save each month: Make sure you’re saving enough money every month to meet your goal. That could require reducing spending through means such as canceling unneeded subscriptions and eating more meals at home.
Find the best place for your savings: Consider opening a savings account at a bank or credit union apart from where you keep your checking account, which may make it less tempting to dip into your savings.
Schedule automatic transfers: Most banks allow you to set up automatic transfers from checking to savings, making it convenient to send a portion of your paycheck straight to savings.

The best savings accounts pay about 4.40% APY and higher. An account with a higher yield will help you build your savings faster.

6. Trade in or sell your old car

Trading in your old car at the dealership will bring down the purchase price of your new one. It pays to calculate the value of your old vehicle before finding out what the dealer determines it’s worth. This can help you negotiate with the dealer to get a fair price. Appraisal tools such as Kelley Blue Book and Edmunds can be used to calculate your vehicle’s value.

You may find you can get more money by selling your car privately than by trading it in at the dealership. However, this may take significantly more time, as you’ll need to find the right buyer. Like when trading in your car, you’ll want to do research on the car’s value to come up with a fair asking price.

7. Learn how to negotiate a deal

Knowing how much you can spend and getting preapproved for financing before visiting the dealership can help you approach negotiations with a salesperson with confidence.

Stand your ground during negotiations if the salesperson is quoting you a price on a vehicle that you feel could be lower, based on your research. Getting competing bids from multiple dealerships can also help ensure you’ll get the best possible price.

You might take some of the stress out of negotiating by doing it online. Some dealerships can be contacted via email or text, and some provide an online chat function through which you can talk with a representative about things like pricing.

Buyers who would rather handle the entire process online can purchase from a dealership that allows for electronic signing of paperwork and can even deliver the vehicle to your home.

8. Consider a side hustle

You can speed up the process of saving for a car by increasing your income. Cutting costs in your spending plan is an effective strategy, but scaling back while adding to your savings helps you meet your goal faster.

Consider getting a part-time job if you have wiggle room in your schedule to earn extra cash. Or you can explore side hustles with minimal start-up costs, such as freelance writing or delivering food. If you have old items lying around, you can sell those, too, to boost your savings.

Regardless of which route you choose, be sure to allocate all the funds towards your down payment fund. You can open a new savings account and set up direct deposits to go there to avoid the temptation to spend the funds elsewhere.

Bottom line

You can take the stress out of buying a car when you save for a proper down payment and don’t bite off more than you can chew. A bit of research and careful planning can go a long way.