A car is a necessity for many Americans, as it may be their only means of getting to places like work, school, the grocery store or the pharmacy. But buying a car is no small purchase, with the average price of a new one reaching more than $48,000 in July, according to Kelley Blue Book.

Deciding what vehicle to buy can involve meticulous research. It’s also important to decide how much money you’ll need on hand before making your purchase.

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

1. 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.

“Aim to save between 10 and 20 percent for your car down payment,” says Nishank Khanna, chief marketing officer at Clarify Capital in New York. “Putting down a large down payment will help you reduce the total interest you end up paying on the loan and lower your monthly payment.”

If you’re seeking a newer car, try to put down closer to 20 percent.

“Generally speaking, a larger percentage down payment is recommended for new cars,” Khanna says. “You want to avoid being in a situation where depreciation outpaces your loan value.”

If you’re buying a used vehicle, 10 percent down might be sufficient.

2. Determine what monthly payment you can afford

The average monthly payments on new vehicle loans and used vehicle loans in the third quarter of 2021 were $617 and $471, 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.

As a guideline, Edmunds recommends that your new car payment shouldn’t exceed 15 percent of your monthly take-home pay — 10 percent if the car is pre-owned or you’re leasing.

3. Consider additional costs

Don’t forget about additional costs such as auto insurance, which typically is 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.

It’s also important to budget for vehicle maintenance, so look for a car with regular maintenance costs within your means, and set aside money in your budget for this purpose. Some manufacturers conveniently include one or more maintenance visits in the purchase price of a car.

Gasoline can be a significant chunk of your monthly expenses, with the national average price at $3.76 a gallon as of November 2022, according to the U.S. Energy Information Administration. The agency’s forecast calls for prices to fall only slightly to about $3.57 a gallon in 2023. So while buying a car with efficient gas mileage can help you make fewer trips to the pump, it can also save you money.

4. Lease or purchase?

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. An upside to leasing is it may require little money up front. Common downsides are extra fees if you go over a set mileage limit per year or return the car with wear and tear that’s beyond average.

Financing a car means you could own it outright after you’ve made the required number of payments to the lender. Financing often carries a higher monthly payment than leasing, although there are no mileage restrictions.

Whether it’s best to lease or purchase depends on your lifestyle and preferences. Leasing can be better for those who don’t have much money to put down, who enjoy driving a new vehicle every few years and who don’t put a lot of mileage on the car.

Financing often requires more money up front, yet it’s more practical if you wish to keep the car after the final payment is made. It also makes more sense if you don’t want to deal with mileage limits.

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 money you’ll need to save every month to afford a down payment for a car.

Once you have a number in mind, make sure you’re saving enough money every month to meet your goal. That could require tweaking your spending habits, like canceling subscriptions you could do without.

As you tuck away your money, find a smart spot for it. One strategy is to open 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.

Another option is to schedule automatic transfers from your checking to your savings account on a regular basis. Most banks provide this option, making it convenient for a portion of your paycheck to go straight to savings.

As of this writing, the best savings accounts pay about 3.5 percent 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.

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.