Top 10 Ways to Save for a Down Payment on a Car

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Even with poor credit.

By

Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - August 19, 2020

No matter what your credit score is, saving for a down payment is a great idea. Not only does it lower your monthly car payment, it saves you cash on interest charges, which is especially helpful for bad credit borrowers.

Do I Need a Down Payment?

Whether or not a down payment is going to be required usually depends on your credit score. If your credit history is a little spotty, it can lower your credit score, so expect to need a down payment to get into your next auto loan. It also depends on what type of lender you work with, the selling price of the vehicle you’re looking at, and the amount you’re aiming for on a car payment.

In general, most financial experts suggest that you should always make a down payment – the old adage being to put down 10% on a used vehicle and 20% on a new one.

To save a large enough down payment, we’ve gathered 10 tips that could help you prepare for your next auto loan!

1. Your Needs vs. Your Wants

Before you start saving, make a list of things you need in your next car vs. what you want in your next vehicle – yes, there’s a difference.

Do you really “need” an orange car or that fancy infotainment system? You can most definitely make a list of things you’d like to have in your next vehicle, but make those secondary to the real needs.

You can ask yourself some questions to evaluate your needs:

  • How many passengers do you have on a daily basis?
  • How much do you drive, and should you consider a fuel-efficient car?
  • Is storage space and the vehicle’s towing ability a must for your hobbies?
  • How important are safety ratings to your family?

Look up some makes and models online, and think about your daily driving habits, your commute, your family needs, and your hobbies.

2. Make a Budget You Can Stick To

To determine how much you should save, you need to have an idea of how much car you can afford. To get started, make a budget and add up all of your monthly expenses and compare them to your monthly income.

With an idea of how much you can spend each month, decide on a payment and the maximum selling price of a vehicle that you can comfortably afford, with the shortest loan term possible to save the most on interest charges. Remember to budget for full coverage auto insurance, too, which is required on all financed cars. With a budget in hand, you can start looking at vehicle options.

If your credit score is a little worse for wear, it’s usually a better idea to choose a more conservative car that you can comfortably afford, so you can lower the risk of overextending yourself and work on your credit.

3. Get a High-Yield Savings Account

Research different banks and credit unions in your area and see what kind of savings accounts they offer. Look for savings accounts with a high annual percentage yield, which is interest, but instead of paying the interest (like annual percentage rate on an auto loan), you earn the interest.

Most savings accounts offer around 0.5% to 1%, so anything higher than that can be great for your savings. Also, it takes no effort to earn that extra cash since it’s usually added to your savings automatically!

4. Make Savings Deposit Automatic

To avoid spending all your monthly income and not having anything to put away at the end of the month, put money in your savings immediately when you get your check. This way, the cash is put away and you won’t be tempted to spend it or have it eaten up by expenses.

Having your savings automatically deposited into an account can be a great way to set money aside for a down payment, and you don’t need to remember to do it each check! Most banks and credit unions can help you do this, sometimes by dollar amount or by a percentage of your check.

5. Lower Your Expenses

This is often easier said than done, but take a good look at your expenses. Can you find a cheaper phone bill? Do you really need cable with all the streaming service options now? Are there ways you can cut down your electric bill, or even cut down on grocery bills by buying generic brands? How often do you eat out in a week?

Check out your monthly expenses and try to cut down as much as you can, within reason.

6. Pay Down Credit Cards

Not only do credit cards accrue interest, that monthly payment you need to make each month can really eat into your income. Avoid using your credit cards unless you can pay it back right away. Make extra payments and pay it down as much as you can, since that money going toward your credit card interest charges could be put into your savings account!

As a bonus, keeping your credit cards below 30% of their spending limit can improve your credit score.

7. Cancel Subscriptions

With so many different monthly paid subscriptions from music to TV, consider cutting down on these. If you have a few subscriptions that you don’t use that often, consider pausing your account until you can boost your savings, or simply cancel it altogether. Try to only pay for what is necessary for the time being.

8. Unsubscribe From Retail Emails

If you’re the type of person that can’t resist a good deal, consider sending those retail advertisement emails from your favorite stores to the junk folder. It can be hard to resist a flash sale on some new clothes, books, or tech, but now is the time to focus on your next vehicle.

9. Pack Your Lunch

Do you eat out for lunch each week? Add up the cost of ordering out every day, and consider packing a lunch instead. Sure, peanut butter and jelly sandwiches might not be as good as Taco Tuesday, but saving for your next car is worth it.

Consider bringing your own coffee to work and skipping that coffee-shop stop in the morning, too. A $5 coffee every workday can translate into around $100 a month to add to your savings!

10. Clean Up Your Trade-In

This isn’t entirely a savings tip per se, but if you’re driving a vehicle now, consider trading it in for your next one. Trade-ins with equity can really knock down how much of a down payment you need to save for.

Trading in your old car at the dealership is a very common way to upgrade, so consider readying your current vehicle. Think about cleaning up stains in the cabin and buffing out scratches to try to get the highest trade-in offer you can.

From Savings to Your Auto Loan

Getting ready for your next auto loan means saving for a down payment, budgeting for what you can comfortably afford, and finding the right lender for your credit situation. If you’re struggling with credit issues, getting a car loan approval can be a hassle – with or without a down payment.

That’s where we want to help. Here at CarsDirect, we have connections all over the country and have cultivated a network of dealers that work with bad credit auto lenders, or subprime lenders. These lenders look at more than just your credit score when considering you for a car loan.

Ready to take the leap into your next auto loan? Start the search right now by filling out our free car loan request form. We’ll look for a dealership in your area that has the bad credit lending options you need to get into your next ride.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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