What down payment should I target on a car?

Paying 100% cash on a $25,000 purchase avoids about $4,700 in interest versus a 60-month loan at 7.0% APR. If you finance, put at least 20% down ($5,000) to reduce negative-equity risk when depreciation outpaces the loan balance in year one.

Is saving better than financing?

Saving $563 per month for three years and paying cash eliminates lender interest and keeps your monthly obligation at zero after purchase. Cash buyers also avoid loan origination fees and may qualify for dealer discounts tied to non-financed sales.

How does depreciation affect my target?

New vehicles lose a large share of value in the first years; targeting a 2- to 4-year-old certified pre-owned model near $25,000 lets the first owner absorb that drop while you still get warranty coverage on many brands.

Savings Goal scenario

Save for a New Car — Cash Purchase Plan

Build a $25,000 car fund in 3 years from $3,000 at 4.25% APY. About $563/month — below the $765 average new-car payment (Experian Q2 2026).

Paying cash for a vehicle eliminates interest and gives you leverage at the dealership. Experian's Q2 2026 State of the Automotive Finance Market report put the average new-car loan payment at $765 per month on a $43,610 average amount financed — well above the $563 per month this calculator shows to save $25,000 in three years from a $3,000 start at 4.25% APY in a HYSA.

Key Considerations

Saving $25,000 in 3 years with $3,000 already banked at 4.25% APY requires about $563 per month — interest contributes roughly $1,700 toward the goal.
Financing $25,000 at 7.0% APR (Edmunds Q3 2026 average for new cars) over 60 months costs about $495 per month and $4,700 in total interest versus paying cash.
Certified pre-owned near $25,000 lets you avoid the steepest new-car depreciation; Experian listed average used payments at $542 per month in Q2 2026 on $27,852 borrowed.
Park the fund in a labeled HYSA sub-account so daily spending does not drain the balance — automation on payday beats manual transfers.
Shopping at month-end or quarter-end can yield $1,500 to $3,000 below sticker on slow inventory, effectively accelerating your savings timeline by two to four months.

Quick Numbers

Target amount	$25,000 car fund
Monthly savings needed	$563 over 3 years
Interest earned (4.25% APY)	~$1,700
Financing cost avoided	~$4,700 interest at 7% APR
vs. avg. new payment	$563 save vs. $765 finance
Starting balance	$3,000

How This Compares

A $25,000 cash target sits below Experian's $43,610 average new-car loan amount in Q2 2026, pointing toward late-model used or compact new vehicles. Saving $563 per month builds the fund in three years while practicing a payment discipline lower than the average financed buyer pays — without handing thousands to the lender in interest.

Frequently Asked Questions

What down payment should I target on a car?: Paying 100% cash on a $25,000 purchase avoids about $4,700 in interest versus a 60-month loan at 7.0% APR. If you finance, put at least 20% down ($5,000) to reduce negative-equity risk when depreciation outpaces the loan balance in year one.
Is saving better than financing?: Saving $563 per month for three years and paying cash eliminates lender interest and keeps your monthly obligation at zero after purchase. Cash buyers also avoid loan origination fees and may qualify for dealer discounts tied to non-financed sales.
How does depreciation affect my target?: New vehicles lose a large share of value in the first years; targeting a 2- to 4-year-old certified pre-owned model near $25,000 lets the first owner absorb that drop while you still get warranty coverage on many brands.

Sources Experian State of the Automotive Finance Market (Q2 2026), Bankrate best high-yield savings (Oct. 21, 2026). Checked October 2026.