What you need to know about saving for a car

Buying a new car can be expensive, and it’s often better to consider saving up for a car rather than taking out a car loan and paying interest. On this page, you’ll find out why it might be best to save 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 car.

The more money 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.

With the average price of a used car rising to over £17,000* following the coronavirus pandemic, buying a new 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 target first. Will you aim to save the full amount, or will you save enough for a deposit? 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.

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. This will depend on how much you can save every month and already have in savings, but it will also depend on 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. 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.

Our best tip for saving for a car is to start as soon as possible. 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. 

To really maximise your savings, one of the best ways to save for a car is to open a savings account. 

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, or, if you’ve got a lump sum you can use to earn a competitive rate of interest on over a number of years so you can buy the car of your dreams, a fixed rate bond might be better for you.

If you want to quickly and easily open a savings account that will help you save for a car, 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://cardealermagazine.co.uk/publish/average-used-car-price-jumps-by-over-32-per-cent-in-april-but-demand-is-softening-auto-trader/261850