What you need to know about saving for a car
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Buying a new car can be expensive, and even the prices of used cars have risen significantly over the past few years. Instead of opting for a car loan and paying interest, it’s often better to consider saving up for a car. On this page, you’ll find out how to save up for a car, how much you might need, how long it could take, and why opening a high-interest savings account is one of the best ways to save for a new or used car.
Lower cost: Saving for a car could mean you don’t have to take out a loan or, if you do need to borrow money, it may help to reduce your monthly repayments
Savings goals: How much you’ll need to save depends on the type and age of the car you want to buy, and whether you intend to purchase it outright or just pay a deposit
Savings accounts: The best way to save for a car is to open a competitive savings account. You’ll need to compare a range of savings accounts to find the one that best meets your needs.
Should I save for a car?
Learning how to save money for a car is important, because the more you’re able to save, the lower the overall cost of your new car, especially if you can buy it outright and avoid paying interest. Even if you can save up for a more substantial deposit rather than the total value of the car, your monthly loan repayments could be lower, or you could pay back less interest than if you simply took out a car loan for the total value of the vehicle.
How much should I save for a car?
With the price of a used car averaging £17,879* (September 2024), buying a car is a big financial commitment. Of course, the type and age of the car you want to buy will dictate how much you’ll need to save.
If you’re thinking of saving up for a car, it’s important to identify your savings goal first. Will you aim to save the full amount, or will you save enough for a deposit? With deposits typically amounting to around 10-20% of the car’s total purchase price, for instance, this would give you a specific goal to work towards. If you set your monthly savings target too high, it can be difficult to maintain it, so you could first set your target to an amount you’re comfortable with and then add more every month if you’re able to.
It can help to factor in long-term expenses such as insurance and fuel costs when you’re working out how much to save for a car. Fuel expenses depend on the car’s fuel type and consumption. You might also include vehicle tax and potential parking fees in your “saving for a car” budget.
How long does it take to save for a car?
Once you know how much you need to save for a car, you’ll be able to work out how long it will take you to get there. It can help to consider your monthly income and fixed expenses when saving for a car, and work out a timeline based on your calculations. You might allocate a portion of your monthly income towards your car fund, keeping in mind your savings goal. You could also choose to create a budget or adjust your existing budget to identify areas where you can cut back or redirect funds toward your car savings.
The timeline will also depend on how much you already have in savings, and the type of savings account you open.
If you already have a lump sum and time to save before you buy a new car, you might consider the competitive fixed interest rates available on fixed rate bonds. You can lock your money away for a fixed term, typically between six months and five years, giving you a set timeframe to save for your car. Alternatively, notice accounts offer competitive variable interest rates with the flexibility of being able to access your money more quickly, typically between 30 and 90 days.
If you take out a loan to buy a car, it could take you longer to pay it off than it would to save up to buy a car in the first place.
What are the best ways to save for a new car?
When it comes to saving for a car, beginning the process early can make a significant difference. The earlier you can start, the more you can save for a down payment that can lower the overall cost of buying a car. You could also consider cutting down on expenses, such as eating out and frequent coffee runs, so you can increase your monthly savings. If you’re wondering how to save money for a new car more efficiently, consider opening a savings account, especially one offering a fixed interest rate, as it can help you maximise your earnings and streamline your financial goals.
What is the best savings account for a car?
When considering how to save for a car in the UK, it’s important to compare different types of savings accounts to find one that suits your needs and savings target. For example, you might want a flexible savings account that allows you to access your money when you need it, such as an easy access account. Alternatively, if you have a lump sum that can be set aside for six months or more to earn a competitive rate, a fixed rate bond might be better for you. Fixed rate bonds come with the advantage that you won’t be tempted to withdraw your funds, making you more likely to achieve your car savings target by the end of the term.
Open a savings account that helps you save for a car
If you want to quickly and easily open a savings account that will help you save for a car in the UK, register for a Raisin UK Account and apply today. Our marketplace is home to a variety of savings accounts with competitive interest rates from a range of partner banks.
*https://marketcheck.uk/market-analysis/uk-weekly-used-car-market-data-7th-september-2024