How to Save for a Down Payment on a Car

Shopping for a new  car can be thrilling, but with that excitement can come anxiety about finances. There are so many considerations, such as putting together enough money for a down payment and preparing for a loan. It can feel overwhelming. However, with this guide on how to save for a down payment on a car, you can start to put your mind at ease as you formulate a plan that will put you behind of wheel in the vehicle you want.

Let’s look at what a potential down payment could look like. If you choose to buy a car that costs $48,000 — roughly the average price of a new car sold in the United States in 2023, according to Kelley Blue Book — an example of a down payment could be:

• $9,600, or 20%
• $12,000, or 25%
• $14,400, or 30%

If you trade in a vehicle that’s paid off, the equity you get from your trade can count toward your down payment, too.

When shopping for new vehicles, best practices call for making a down payment of 20 percent or more. For used cars, prepare to put down at least 10 percent. The difference in percentages is because the vast majority of new cars depreciate faster than used vehicles.

Your credit and personal financial situation should factor into your down payment planning. For example, if you have a high credit score, you are more likely to be able to borrow more money and get favorable terms compared to someone who has bad or no credit. Those with bad or no credit should put as much money down as possible to improve their chances of getting an auto loan with the best possible terms.

Create Your Budget and Stick to It

As a best practice, you shouldn’t put more than 10 to 15 percent of your monthly take-home pay into the cost of a vehicle’s monthly payment and recurring expenses. This means if your take-home pay every month is $4,000, you shouldn’t buy a new luxury sports car that comes with a $1,000 monthly payment. If you want that sports car, come up with a bigger down payment before buying so you don’t stretch your finances so much, or consider a gently used model that has already depreciated in value and won’t be so cost prohibitive.

The 10- to 15-percent figure also includes vehicle-related expenses such as fuel, if you are buying a vehicle with an internal combustion engine, plus oil changes and repairs. If you buy an electric car, recurring expenses, minus the cost of charging, drop significantly since there’s no refueling or oil to change.

Not sure what your budget is? We can help with that.
 

Adjust Lifestyle and Expenses

This is where saving for a car down payment can get tricky. Saving can be hard, but once you determine what you need versus what you want, it’s easy to put together a budget. As a habit, If you put off purchases for items you want, instead of what’s needed, the temptation to buy will often dissipate to where you may not even want to make the purchase anymore. The bottom line: If you spend more in a month than what you make, you have nothing to save.

For all recurring expenses, map out a monthly budget so you know what you must spend before the month even begins. Having a budget figured out will show you whether you’re living within your means and what can be changed. Recurring expenses for your budget may include:

• Rent or mortgage
• Groceries and toiletries
• Retirement savings
• Internet and entertainment (cable, satellite, streaming services, etc.)
• Phone plan
• Debt payments (personal loans, credit card interest, etc.)
• Health and childcare
• Vehicle and transportation costs
• Utilities (heating, cooling, water and sewer)
• Insurance (homeowner’s, renter’s, auto, etc.)

Now that you’ve looked into your recurring expenses, figure out what you can trim. To get that car you want, are you willing to buy cheaper groceries, eat out less frequently, skip the drive-thru line for your daily coffee on the way to the office, or maybe even cancel some of your subscription services you don’t use as much? You can also shop for better deals, like getting a cheaper phone or internet plan.

Even after you’ve identified and made spending cuts, you can find ways to have fun. Instead of eating out as often, this could be your chance to develop or refine your cooking skills and host from your home. Rather than going to the movie theater on weekends, invite friends and family to your home for a movie, snacks and popcorn. The little things add up, and with some tactical trimming, you’ll be amazed at how much you can save.
 

Get Smart With Your Savings

You can also save for a car down payment by putting the money you already have to work for you. With a savings account from DCU, you can accumulate funds more quickly through compounding interest, made even easier with today’s high interest rates. For high-yield savings, a Primary Savings account from DCU is a great way to kickstart your savings. Advantage Savings accounts are also popular, with a higher annual percentage yield (APY) than the national average for savings accounts.

With DCU, you can even automate deposits to your savings account after each paycheck is deposited to help build savings. This means you can safely stow away funds before you have the chance to spend.
 

Reach Your Goals Sooner With DCU

Now that you have a budget and a better idea of what it takes to prepare for car ownership, figure out your timeline and what you’re looking for in a vehicle. You don’t want to waste time, but you shouldn’t rush into such an important decision.

DCU is here to support members in their goals of saving and growing their money by offering some of the highest interest rates on savings accounts in the country right now. With a smart budget, some wise decision-making, and a high-yield savings account from DCU, you’ll be able to achieve your goals sooner.

Please note, membership is required to open a DCU Auto Loan. Visit our membership eligibility page for more information.

This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.