How to save money for a car

Whether you’ve just passed your driving test (congratulations!) or you’ve decided to upgrade your wheels, whether you want to go new or used, you’re probably wondering: “How do I save up for a car?” Our simple guide has hints and tips to help you make your own roadmap to success.

Cars can often be one of the most expensive things you own and knowing where to start when buying one can be hard. It might be tempting to take out a loan to cover the cost or lease your new car. But if you start early enough and stick to your plan, you could find that saving for a new car can be the best financial option for you.

Is saving for a car right for me?

Saving for a car can be a great option for those looking to get that new car smell experience without draining their pockets completely. Saving money for a car, instead of taking out a loan, can be better for your finances because it can lower the total cost of your vehicle. 

When you borrow money you have to pay interest on top of the total cost,  which means you will pay back more than you borrow.  This option offers flexibility for those unable to buy a car outright, but for pricier items,  interest can add up. 

Whether you decide to buy your car outright, or even if you decide to take out a loan, saving money improves affordability. Adding a deposit to your loan lowers how much you need to borrow and reduces the total interest payments.

 How much should I save for a car?

You’ve decided that saving up is the best way forward, but now you’re wondering: “How much should I save for a car?” Well, there isn’t a one-size-fits-all answer to this question, but there are a few things to think about that can guide your decision. 

The cost of your new wheels will depend on lots of factors, like age and model and whether it’s new or used. But the average price of a new or used car is between £12,000 and £17,000. So, even if you can  find a great deal, how much you have to save for a car can often be a serious commitment. 

If you want to save up for a deposit to help you reduce the cost of car finance, you may opt to target approximately 10-20% of the value of the car that you want to buy. Some lenders will require a deposit of around 10% to release the money in the first place, so this is a good place to start.

It’s important to set realistic savings targets. Setting milestones that you can reach can help to keep you motivated towards your goal. Sticking to your plan is the most powerful savings tool. It’s amazing what you can achieve when you just keep at it. So whatever your savings target, make it attainable. 

A great way to work out how much to save for a car is to figure out  what you think you can realistically save every month and consider how soon you’d like to see yourself in your new wheels. If you multiply your realistic monthly savings by the number of months that you want to save for, you have an achievable target. 

To work out how much you can afford to save every month, you could try using the 50/20/30 method. Break your monthly income into three chunks. 50% for the things you need (rent and bills), 30% for what you want (luxury and entertainment), and 20% for your long-term savings goals. Work out 20% of your income and times it by 12: that’s generally a reasonable goal for a year.

 Are we nearly there yet? How to save for a car quickly

You likely want to know how to save for a car quickly. We get it, a car can be a pretty vital part of your life. It can provide the freedom to get you where you need to be, whether it's for a new job or to shuttle your family or friends around.

By using the 50/20/30 budget rule above, you can get a good sense of how much you can save and how long it will take. If you want to reach your goal more quickly, you could increase the percentage of your income that you save. But remember not to put yourself under too much pressure. 

 What’s the best way to save for a car?

The best way to save for a new car, or any large financial commitment, is to get started as early as you can, and stick with it. When it comes to saving, the real power is in having plenty of time and dedication. With these two elements, you can achieve amazing things that may have otherwise felt out of reach.

One of the best ways to save money for a car is to cut down on unnecessary expenses.  You could ask yourself if you’re getting good value from your gym membership and making the most of your streaming subscriptions. Could you save more money by skipping your daily takeaway coffee from time to time? It's worth tallying up these small expenses to see their total — you might find it eye-opening.

Should you buy or lease a car?

If you’re able to buy a car outright, that’s often the most cost-effective option, because you pay the market value. But lots of us don’t have that much money ready to go without saving first. If you borrow the full amount, you’ll pay interest which will make the car more expensive in the long run.

Another option is to lease a car. You will normally pay less than the market value because you’re essentially borrowing the car, rather than paying outright for it. After a set amount of time you return the vehicle, but what are the pros and cons of leasing a car?

Pros are you don’t need a large deposit, you’re protected against vehicle value depreciation and long-term maintenance, and it’s usually more affordable with smaller upfront costs. Cons are you don’t own your car and can’t resell or trade it,  there are restrictions for your mileage and wear and tear, and the insurance premiums tend to be higher.

 How to save up money for a car: Open a savings account

It can be hard to know how to start saving for a car. But a great place to start is with a savings account. Putting your savings into a separate account can help you organise your finances. Automating your payments with Direct Debits or standing orders on payday could help you avoid the temptation to spend on anything else. 

If you are saving towards a deposit for a car loan, you may want to check your credit score. Your credit score is a numerical value that lets you know how creditworthy you appear to potential lenders. When you apply for car finance, most providers will run a  hard credit check to determine whether you can get the money and at what interest rates. 

When it comes to large loans, better interest rates can save you £1,000s over time, so it’s worth making sure your credit score is in good shape before you reach out to lenders. You can check your credit score for free, and without impacting it, using these recommended services:

• ClearScore (uses Equifax data)*
• Experian App (uses Experian data)
• Intuit Credit Karma (uses TransUnion data)

*Transparency is important to us, we choose our partners very carefully, and only present financial products we think will work for you. If you sign up to ClearScore using the above link, then they will pay us a commission for this.

If you want to save for a new car and improve your credit score at the same time, Loqbox can help you do just that! Simply set your savings goal, and we'll provide you with a loan, locking the funds away. We then report your regular savings contributions to the UK's leading credit reference agencies (CRAs): Experian, Equifax, and TransUnion. This not only helps to increase your credit score but also allows you to progress toward your savings goal.

Improvements to your credit score are not guaranteed.