Talk to our team to start saving1.877.445.0070

Auto Refinance

AUG 23, 2022

Best car buying practices: How to save up for a car with a vehicle budget

Learn how to save up for a car and how to budget for car-related expenses.



9 min read

Started refinancing yet?

Easily start the refinance process through Caribou. Apply in minutes.

Few personal investments carry as much weight as the purchase of a car. Many buyers will spend weeks or months researching the one that’s right for them, and there are a lot of vehicles to consider. But whether you decide on a brand-new car or an older model, it’s worth formulating a money-saving strategy and car buying budget to ensure you understand how much you can spend on a car without over-borrowing. Below, we offer some tips on how you can properly save up for a car.

About saving for your new car 

Buying a new car is a big deal, and you want to get it right. Put plenty of thought into which car is right for you and ensure you can pay for it without adding financial difficulty to your life. Try using no more than 20% of your monthly income for vehicle expenses and payments. We recommend trying to make an adequate down payment of at least 10% on your new car. Having a larger down payment is one way you can decrease your monthly car payments while lowering your overall financial obligation by paying more upfront.

Spend time saving money for your down payment and future costs. Building up savings you can use for your vehicle purchase is easier said than done. Combine that with all of the other expenses that life brings, and you have a challenge on your hands. That’s why, before you go shopping for your new vehicle, it’s a good idea to review whether you’re spending within your means.

But good budgeting isn’t always about sacrificing all other nice-to-haves and non-essential expenses in favor of increasing your savings. Your saving plan needs to be realistic and align how much you can spend on a car based on your income and expenses. Ultimately, this will all stem from the cost of the car you want to buy. Let’s take a look at how you can find the right car, other costs and fees associated with the car, and how you can budget properly.

Set the right budget based on your salary

Many of the best things in life are worth waiting for. Car buying is the same, and saving up to afford a car is often about patience. Your wallet and bank account will thank you later! Take a look at your monthly salary. How much do you make? Calculate your post-tax cash flow each month and try to use no more than 20% of that number for vehicle expenses and payments.

You should also look at how the down payment amount will affect your monthly payment while researching the car price. Many lenders will require at least some money upfront, and the more you put down, the lower your monthly payments will usually be.

Many finance managers suggest aiming for at least a 10 to 20% down payment on a new vehicle, and at least a 10% down payment on a used vehicle. So, if a used F-150 truck costs $37,000 for example, a 10% down payment would be around $3,700. This isn’t set in stone, but remember that many lenders won’t consider giving you a loan unless you have managed to save up a down payment.

Using this percentage method, you can calculate the price of a car that you will be able to afford based on how much money you make. Then, factor in the additional and ongoing costs that you are likely to incur as a car owner like registration fees and insurance. You can better establish a budget using all of these expenses like rent or mortgage payments, utility bills, and food or groceries along with a savings plan.

Need more money in your car budget?

See if refinancing your car loan will help! Check to see if you can put cash back in your wallet. On average, Caribou customers save $115+ a month*.

How you can find the car you want

The big question is, “what type of car do you want?” With more vehicle choices available now more than ever, buying a car can often feel overwhelming. Many people have a “dream” car that would be the ideal choice but looking at some more realistic options that fit within your car budget is also helpful. This will give you a better idea of how much you might need to save in order to afford a car that will suit your needs.

Some factors to think about when researching which car is right for you include:

  • Type: Vehicles come in all shapes, sizes, trims, and editions. To start, choose a make that you like Ford, Honda, Toyota, Dodge Ram, or GM — just to name a few of the most popular brands. Pick your style of vehicle next and choose whether you want a sedan, SUV, minivan, or truck along with the fuel type of gas, diesel, or electric. These selections will help you narrow the field of vehicle choices. Once you have a make and model picked out, check out the trims next. Even within the same line of vehicles, the higher end trims often feature upgraded engines beneath the hood, passenger compartment features like heated seats, and other premium options like satellite navigation or OnStar. The options you choose will have a big impact on the cost you can expect to pay.

  • Year: The year of the vehicle is important in determining a car’s value. If you have two of the same make and model vehicles with similar mileage with one newer and the other five years older, the older vehicle is usually worth around 15% to 20% less in value. Newer cars also can have benefits like factory warranties and be in better condition with less wear and tear – but these benefits will cost you. Older cars are cheaper with potentially needing more upkeep, maintenance, and repairs as the car and components age.

  • Mileage: The mileage of a car affects the market price of the vehicle. Most vehicles are driven around 12,000 miles a year. This average mileage is accounted for in the fair market value of a car. Older cars with less mileage can be the same price as newer cars with more mileage. If you compare two six year old vehicles with one having the average mileage of 72,000 miles and the other having only 27,000 (because it was used as a spare vehicle or second car), you will find their market prices will differ by up to 20% to 30% or more according to Kelly Blue Book, or KBB, values. The prices vary since the more miles a car has accumulated, the more wear and tear and repairs it is likely to have had. Some of the best used car deals can be found by looking for older cars with lower mileage.

Wanting vs needing a car: Is it the right one?

So, do you remember your first dream car? What you want versus what you need may ultimately land on two very different categories of vehicle. Cost is by no means the only consideration here – though it is an important one. Rather than setting your heart on the first car you see, try shopping around. There’s no shortage of options for car-comparison, buying, and review websites like Carvana, CarGurus, and KBB. These websites can offer great insight into the vehicle’s manufacturer’s suggested retail price (MSRP) compared to the actual price it is being sold for.

The “should I buy a new or used car?” debate is an on-going one, as well. A shiny, brand-new car is fun, flashy, and can have enormous appeal. But according to AAA, a new car can lose around 20% of its value the moment it drives off of the lot. With this in mind, buying a used car could be the way to go if saving money is your top priority. There are many other reasons to consider new versus used vehicles, so check out our guide on things to consider.

Functional use of the vehicle is another big factor. If you have a need for speed, the idea of a fast sports car might seem like a great idea if you can find a good deal. However, if you’re looking for a vehicle that can hold a family of five or one that can transport large furniture pieces, then you may be better off driving a minivan or truck with an extended crew cab. Be practical with your car purchase and match your car to your lifestyle and family transportation needs.

Additional costs for insurance and maintenance

Your car insurance and maintenance costs need to be included in your new car budget. The outright cost of the vehicle is just the start when it comes to the real cost of car ownership. The maintenance costs continue even after you’ve bought or paid off your vehicle. AAA states the average annual cost of new car ownership is $9,282, or over $770 a month.

Expenses like car insurance and sales tax contribute to the costs that come with car ownership. Plus, the cost of ongoing repairs and general car maintenance are not to be underestimated – particularly if your car is an expensive semi-luxury or luxury make or model. And while newer cars may be less likely to have problems or require repairs, they usually end up costing far more to insure.

These additional expenses are crucial to factor into your budgeting decisions when saving up to buy a car. If your vehicle choice pushes your car buying budget to the limit, then you may end up having difficulty paying for the additional costs further down the line.

See if you can save money on car insurance

Looking to save money on your car insurance policy? Check to see if you can put cash back in your wallet by switching your insurance through Caribou.

Have a financial plan ready for after you buy a car

The planning doesn’t stop once you’ve managed to save up enough to put a down payment on your new car. Remember, if there’s a car purchase coming in the future, then there should be a car budget. Staying on top of monthly payments while retaining enough cash on hand to pay for unexpected repairs or maintenance is crucial to your future budgeting. 

If you are planning to finance your vehicle, then it’s worth brushing up on the basics of auto refinancing, which can allow you to replace your existing auto loan with a new one — potentially with another lender.

Go create your budget

Develop a plan which supports your auto budgeting for the long term. If you’re looking to buy a new car that suits your needs, then understanding your car needs and saving before buying is a great way of ensuring that you pick up the right vehicle for you. With diligent research, solid budgeting, and a practical approach, your next car purchase should smoothly get you on the road.

Car saving FAQs

  • How much of my income should I use for vehicle expenses? Try using no more than 20% of your monthly income for vehicle expenses and payments.

  • What percentage of a car’s value should I put down? We recommend trying to make an adequate down payment of at least 10% on your new car.

  • How can you find the car you want? Consider the following factors when researching which car is right for you: type, make, year, mileage, condition, and functional use.

Read more

Learn about the important insurance and refinance terms

See the basics of auto refinancing

Compare buying a vehicle versus leasing

Through Caribou, you could start saving today!

Twitter Icon
Instagram Icon
Facebook Icon
LinkedIn Icon
Contact Details
NMLS #1746612

Mon - Fri: 9am - 8pm EST

Sat - Sun: 9am - 4pm EST

717 17th Street, Suite 700
Denver, CO 80202

* This information is estimated based on consumers whose auto refinance loan funded through Caribou between 3/1/2023 and 3/1/2024, and had an existing auto loan on their credit report. These borrowers saved an average of $115.72 per month. Refinance savings may result from a lower interest rate, longer term, or both. There is no guarantee of savings. Your actual savings, if any, may vary based on interest rates, the repayment term, the amount financed, and other factors.

+ To check the refinance rates and terms you qualify for, we conduct a soft credit pull that will not affect your credit score. However, if you choose a loan product and continue your application, we or one of our lending partners will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

++ Social security number is required should you choose to move forward in the loan application process.

** APR is the Annual Percentage Rate. Your actual APR may be different. Your APR is based on multiple factors including your credit profile and the loan to value of the vehicle. APR ranges from 5.99% to 28.55% and is determined at the time of application. Lowest APR is available for a 36 month term, to borrowers with excellent credit. Conditions apply. Advertised rates and fees are valid as of 5/20/24 and are subject to change without notice.

Terms and Conditions apply. Caribou reserves the right to modify or discontinue products and benefits at any time without notice. Participating lenders, rates and terms are also subject to change at any time without notice. The information you provide to us is an inquiry to determine whether our lenders can make you a loan offer. If any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. We do not guarantee that you will receive any loan offers or that your loan application will be approved. If approved, your actual rate will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Offers not available in MD, NE, NV, WV.

©2024 Caribou Financial, Inc. d/b/a Caribou. Caribou® is a registered trademark of Caribou Financial, Inc. All rights reserved.