How To Save for a Car

Whether it's your first car or a long-overdue upgrade, the hard part usually isn't picking one; it's paying for it. Saving up ahead of time can help you secure a smaller loan, a lower payment, and far less interest over the life of the car. It also frees up cash for other ongoing expenses, including insurance, maintenance, and repairs. 

Here's how much to aim for, how long it takes, and the moves that can get you there faster.  

How much should you save for a car?

The short answer is enough to cover a healthy down payment plus the costs of buying and owning your next vehicle. The specific figures will depend on whether you buy new or used and how you plan to pay.

New vs. used car costs

Whether you buy a new or used car is the single biggest factor in setting your goal. According to May 2026 data from Cox Automotive, the average price for a new car is $49,220,^[1] and the average cost of a used car is $26,918.^[2]

That gap ripples through your down payment, your monthly payment, and how fast the car loses value early on. So, if you want to spend less and save less, a reliable used car is usually the faster path. But, if you're dead-set on a new vehicle, several models start in the $20,000 to $30,000 range.^[3] 

Down payment benchmarks

A useful rule of thumb is 20% down on a new car and at least 10% down on a used one.^[4] On the average used car, that's roughly $2,690, compared to $9,840 for the average new car. The bigger your down payment, the less you borrow, which translates to a lower monthly payment and less total interest charges. It could also help you qualify for a lower interest rate. 

Don't forget additional costs

On top of your down payment, it's also important to budget for sales tax, title and registration fees, and your first insurance premiums. These costs can add hundreds or even thousands to your day-one expenses. 

Going forward, you'll also want to make sure you can afford fuel, maintenance, and repairs. Those costs can vary depending on the model you choose.

Set a savings goal and timeline

Once you have a target, break it down into a monthly number you can act on. For example, let's say you plan to save $6,000 to cover the down payment and other upfront costs, and you plan to buy your next vehicle in 12 months. 

Simply divide $6,000 by 12 to get a $500 monthly savings target. If you can't afford that, you may need to adjust your savings goal or your timeline. Regardless of how you plan to save, make sure you can afford it without sacrificing other important budget needs and financial goals.

Create a dedicated car savings account

Money in your checking account has a way of disappearing into everyday life. Open a separate account just for the car, ideally a high-yield savings account that earns a little interest while you wait. Separating those funds removes the temptation to dip in, and watching the balance grow can keep you motivated.

Cut expenses to save faster

You don't necessarily need to overhaul your entire budget, but take a look at both your recurring bills and discretionary spending to see if you can redirect some of your cash flow.

Review your subscriptions, dining out, and any memberships you rarely use, then put whatever you free up straight into the car fund. Trimming $150 a month may seem minor, but over a year, it adds $1,800 to your savings, enough to cover most of a down payment on a used car. 

Increase your income temporarily

If cutting your budget alone won't get you there in time, a temporary increase in income can close the gap. Options include picking up extra shifts, taking on freelance work, selling unused belongings, or working a seasonal job for a few months. Because the effort is short-term and tied to a single goal, it is easier to stay focused until you reach it. 

Automate your savings

Consistent savers rarely rely on willpower. Set up an automatic transfer from checking to your car fund on each payday, so the money moves before you have a chance to spend it. Treating that transfer like a required bill keeps your savings growing without ongoing effort.

Should you pay cash or finance?

Ultimately, the right choice depends on your situation. A few factors can help you weigh your decision:

• Your emergency fund: Paying cash avoids interest entirely, but it only makes sense if you can do it without draining the savings you would need in an emergency.
• The rate you qualify for: In the first quarter of 2026, new-car loans averaged 6.39%, while used-car loans saw an average rate of 11.43%.^[5] Borrowers with stronger credit may qualify for rates closer to 4% or lower, which could make borrowing more worthwhile.
• What else the cash could do: Financing keeps more money on hand for other goals, though spreading the cost out means paying interest over time.

If a car purchase is on your horizon, it is worth establishing a positive credit history now. The free Kikoff Credit Account reports your on-time payments to all three major credit bureaus, so starting early gives your history time to work in your favor before you apply. 

The bottom line

Saving for a car comes down to a clear number, a realistic deadline, and a few automated habits. Decide what you're saving for, set up your transfers, and reduce spending where you can. The more you save before you buy, the better your position, either in the form of a smaller loan and stronger terms if you finance, or no interest at all if you can pay cash. 

Looking to establish credit before your next big purchase? Kikoff can help you get started.