Buying a car doesn't have to mean taking on years of monthly payments. By planning and paying cash, you can avoid debt, keep more of your income, and make faster progress toward your financial goals.
Buy Your Next Car with Cash
- No car loans
- No financing
- No leasing
Instead, save up and buy the best vehicle you can afford with cash.
Step 1: Save Before You Buy
Rather than committing to a monthly car payment, make that payment to yourself.
- Start setting aside as much money as your budget allows each month toward your next vehicle. The more you save, the sooner you'll be able to buy with cash. As a benchmark, many people choose to save the equivalent of what a typical car payment would be, which is often $400–$800 per month. Start with what you can.
- Deposit that amount into a dedicated savings account each month.
- Often, after about 10–12 months, you'll have enough saved to purchase a reliable used vehicle outright.
Saving first gives you flexibility and eliminates the stress of monthly payments that you are required to make.
Step 2: Buy What You Can Afford Today
You don't have to buy your dream car right away.
Instead:
- Purchase a dependable used vehicle you can pay for with cash.
- Drive it while continuing to save.
- Upgrade over time by paying cash for your next vehicle.
Each time you upgrade without financing, you'll avoid interest payments, and you can build wealth instead of debt.
Step 3: Never Finance
New vehicles lose value quickly, especially during the first few years of ownership. Financing a depreciating asset means you could owe more than the vehicle is worth.
When you pay cash:
- You eliminate monthly car payments.
- You avoid paying interest.
- You free up more margin to put toward your financial goals, such as building an emergency fund, paying off debt, investing, or saving for retirement.
Follow the Vehicle Value Rule
A good guideline is that the total value of all the vehicles you own should not exceed 50% of your annual household income.
Example:
If your annual household income is $82,000, the combined value of all your vehicles should be $41,000 or less.
This helps ensure that too much of your wealth isn't tied up in assets that lose value over time.
Pro Tip: Plan ahead with EveryDollar Premium. EveryDollar Premium makes it easy to create a budget and prepare for your next vehicle purchase. You can create a Vehicle Fund in your budget in EveryDollar to track savings for your next car!