Buying your first car is a modern-day rite of passage into adulthood. Getting behind the wheel opens realities for you that were just dreams before. Think: spontaneous day trips, no longer waiting 30 minutes for public transportation to arrive, and independence to go wherever whenever. These realities, however, begin with most likely the most significant purchase in your life thus far.
Making a mistake with your car purchase can turn your dream into a nightmare, especially if you are buying a pre-owned car. You can overpay, make the wrong choice in the make of car, or commit to too much auto financing. On the other hand, if you can make the right choice, you’ll be set with a good ride for years to come. To help you get started on your journey, here are some things to know about buying your first car.
Assess Your Requirements
The car of your wildest dreams, like a Lamborghini or Bugatti, would be awesome to drive, and we have all daydreamed about this. But reality makes us analyze our specific, immediate needs and, more importantly, our budget.
Do you have a big family? Then you’ll need extra space, which only an estate car can handle. Are you just looking to run around town to the store and back? Then a hatchback would better meet your needs. Enjoy the latest tech? Then, you’ll want to buy a newer car with fancy extras like Bluetooth and Apple CarPlay.
Where Are You Located?
Another consideration is your location. If you live in Wyoming, for example, then a convertible would be impractical as you receive on average 91.4 inches of snowfall each year. But if you live in downtown Los Angeles, then why not drive in the open air enjoying the warm breeze and sunshine?
Think about your budget too! Different brands are cost prices, and you don’t want to stretch your budget too far. A Honda or Toyota is much more affordable than a Mercedes or Audi. It’s not just the sales price of the car you need to consider. Insurance, fuel, and maintenance are all ownership fees you should consider when making your choice. Some models are just more efficient. You may even save money on those additional costs by spending more upfront.
Suggested Reading: Why SBA Loans Are Great Funding Options for Small Businesses
New or Used? Buy or Lease?
How you buy your new car will depend on your budget and chosen vehicle. Used cars are cheaper and can generally be purchased outright or with a small loan. However, because you are buying a used car, you have to be wary about its current condition and history. Has the vehicle suffered any significant damage? How does it run now? Does the car have all of the extras that you want?
The Price Tags
Buying a new car can alleviative the risk of this uncertainty, but it comes with a higher price tag. To avoid a used car, you can apply for a loan or opt to lease a vehicle from the dealer. Leasing a car allows you to take ownership for a set period while covering the cost of depreciation over that time. The lease payments are usually less than the loan payments you would typically make if you bought the car outright. At the end of the lease, you can choose to lease a new car or go through the process once more.
Buying the car outright with or without a loan does have its advantages. The most obvious is that the vehicle is yours, and once you pay off the price, you are free to do with it as you wish. You can also take out a loan, but the interest will be higher because it is a new vehicle. No matter how you proceed, always negotiate with the salesperson. There is often room on the profit margin to allow a discount for you.
Also Read: Guide to the Best VA Lenders
Finding Your Chosen Car
Once you have decided on the make and model of the car you want, it’s time to find where you can buy it from. An excellent place to start is the Kelley Blue Book. KBB serves as an excellent resource for anyone in the market for a new or used car. You can search for your chosen vehicle and get information on average pricing, as well as reviews on the car itself. Kelley Blue Book even has listings for vehicles for sale.
If buying new, you can order from the manufacturer’s website depending on the make or visit a certified dealer. Most car dealers have websites for customers to check their stock before heading down to the showroom. Other great places to find new cars include Autotrader.com and cars.com. Both of those sites can also help with buying a used car. To get the best price, you can try a private vendor on Autotrader, eBay, Facebook, and craigslist.
Going for a Test Drive
Whether new or used, you should always test the car to ensure everything is working and what you expect. Listen for rattles and noises because this usually signals trouble. Your nose can serve you just as well as your ears. Smell for burning, mold, or other pungent odors. If there are significant warning signs, then walk away from the deal. If there are only minor issues, then get them checked out before handing any money over.
While test driving, you should check to make sure everything else works as intended. Make sure the central heating works both ways, for example. If you struggle to operate new features, read the owner’s manual. It is best to test your car on a dry, bright day to ensure rain and the dark don’t hide any damages. It can also be a good idea to bring a mechanic with you on the day of your test drive. A professional set of eyes and ears may reveal something you missed.
You should note that if the car salespeople object to your detailed pre-purchase inspection and testing, then you should walk away from the sale. If there is nothing to hide, they will hide nothing.
Vehicle History Report
As you know, buying a used car comes with some uncertainty. Therefore, you should seek out a vehicle history report. You can get the report on the vehicle by using the vehicle identification number or VIN. You can find this number on the title of the car, the front dashboard, or the engine.
Expect to pay up to $40 for this report, but it is worth every cent. The report shows the number of previous owners, how often it has been serviced, and if there are common issues with the model. A recent accident or repair may or may not show up in the report, so do some research and ask some questions. A seller who provides this report for you can generally be trusted.
Suggested Reading: Are Debt Consolidation Loans Right for You?
How to Afford a New Car
So, you know what type of car you want to buy and where to buy it, but the most important question still looms: How will you pay for it? Once again, used cars are cheaper than newer ones, but even they are still one of the most expensive purchases of your life. A common mistake that most new car buyers make is to squeeze the expense of a new car into a very tight budget. That can lead to debt, which can then lead to selling your new car. Luckily, some options can help with the costs of your purchase:
You may need an auto loan to afford your new ride — it’s not just the car itself you need to fit into your budget; it’s the insurance, registration fees, and service appointments. A loan can help make the total cost more manageable.
Before applying for any loan, you need to know your credit score. You can get your score from each of the three credit reporting agencies. A better credit score will lead to a better deal on your loan terms. Also, if you’re applying for a loan, you should ensure to get it pre-approved by your chosen bank or credit union before committing to any purchase. Pre-approval will allow you to walk into the dealership with the budget amount already settled.
Also Read: Home Insurance 101
Watch Out for Hidden Costs
Some dealerships will offer you financing options for the car, but if you have pre-approval, you will be in a better position for negotiating. If the car salesperson puts an offer on the table, then you should read the terms and conditions carefully. You are dealing with an experienced salesperson who makes money from a commission. For this reason, a deal that seems right upfront may come with some hidden extras, such as an extended warranty. It is generally best to keep the financing of your new car separate from the dealership, which is another reason to get pre-approved on loan.
Even if you get a loan, you may still need to cover a down payment on the car. The down payment can be paid in cash, with a cashier’s check, personal check, or even with a credit card. Once the car payment loan is paid off, you will have to head to the DMV to have the dealership removed from the lien holder.
Also Read: Get Smart With Mortgage Rates Before You Buy
Leasing a car is a way to stretch your budget to get the vehicle you want. Leasing is an excellent option if you’re going to get a new car every few years. Just note that the car will never actually be yours. Despite this fact, it is a popular option with three out of ten cars leaving a dealership on a lease.
Leasing works with you taking the vehicle and then covering the cost of deprecation on the vehicle. For example, if your chosen car is worth $25,000 new and is expected to lose $10,000 in three years, then you cover that $10,000 plus interest with monthly payments. You will also have to pay a security deposit on top of the actual lease costs. Once the lease term runs out, you can opt to purchase the car or lease a new one.
Moreover, since the car is not yours, there are restrictions on your usage. Those restrictions include the miles you can drive, the number of regular maintenance visits, and the condition the car needs to be in when returned. Car leasing short term can be more affordable than buying one outright, but this not always right. If you plan to be a long-term driver, then finding a way to buy a car is a better option because eventually, those monthly payments will end.
Certified pre-owned cars are cheaper than brand new ones and may be a better option for you. The “certified” part means that the “used” car has been through tests by the manufacturer to ensure it is safe. These tests eliminate possible concerns that can come with buying a used car. Certification comes from the manufacturer, though a dealer may offer their certified approval. However, there is no way to tell if this dealer certified vehicle meets the same standards as the manufacturer. For that reason, you should always check that the manufacturer has verified the car you are purchasing. For a standard car, the additional cost certification brings may not be worth it. However, if you take a fancy to a luxury vehicle, then buying certified pre-owned allows you to buy second hand, so cheaper than brand new while having a guarantee of reliability.
It may not be practical for your first car, but if you wish to avoid a loan for your next car, then consider improving your savings. A dedicated savings account can help you keep money aside each month. Banks pay interest on the amount in your savings accounts, so you should shop around to find the best deal. It is also possible to set a goal in your account. You can take your budget and set it as the target and then deposit money as it becomes available. You may not need a new car right now, but in a few years, you will have money saved up if you do. You don’t even need to save the full amount; enough to cover the deposit upfront, which helps lower the amount you need from a car loan.
Suggested Reading: Our Top Lender Comparison for FHA Rates
After Buying Your Car
You have negotiated a fair price with the dealer, but now what? Unfortunately, you won’t get much further without car insurance. Car insurance covers expenses that come from road traffic accidents. Examples include damage to the vehicles involved, as well as any medical costs. Car insurance does not come in a one size fits all package. Different levels of insurance are available depending on your budget. Insurance does not come cheap, so factor it into your initial budget.
Factors That Affect Insurance Costs
Many factors can raise and lower the price of insurance. Age, gender, and even marital status can all affect the amount you pay. Additionally, you’ll need to consider types of coverage because there are on average 6 million accidents in America every year:
- Liability coverage is the basic package available. If you are the driver of a car that has hit something or someone and has caused damage, then it is the insurance that covers the involved costs. Beware that if the expenses are over your cover amount, then you will be required to cover the excess.
- Collision coverage is not mandatory but can be helpful if, as the name implies, you have suffered a collision. Collision repairs require a lot of time and working hours, so costs can quickly add up. If you have a new car, then it may be worth the investment.
- Comprehensive coverage covers most forms of damage that are not collision-related. Do you have a broken windscreen from a massive hail storm? If so, a full cover will help with the repair costs.
Suggested Reading: Top 5 Mortgage Mistakes to Avoid
Safety and Emissions Inspections
To drive a car, you need to register it, but to register the car it first needs to pass both safety and emissions inspections. Inspections are typically done with the dealer if the vehicle is new, but things are a bit more complicated for a used car.
A safety inspection ensures that the car is safe for the road. Tests are conducted to make sure the brakes, indicators, lights, tires, and other parts of the car all work as they should. Once you pass this test, you receive a sticker to show that the vehicle is safe for the next year or two. Safety tests are usually valid for one year before needing to be done again. If the car fails the test, then you have to get the suggested repairs done before applying for a new test. Most gas stations and repair stations can perform this safety test.
Your car’s emissions are more important than ever, as science reveals the dangers of increasing amounts of carbon dioxide in the earth’s atmosphere. For this reason, emissions tests are carried out to ensure your new car is not putting out higher emissions than allowed. Upon passing this test, you receive a sticker to show you did. This test is usually valid for two years.
Registering Your Car
Registering the car makes it legally yours, and most dealers will do this for you. If they don’t, then you will have to take a trip down to the DMV. You will need to take the title of your new car along with proof of insurance and the safety and emission inspection papers. You will also have to pay a registration fee. If you bought your car from a private vendor, then you will also have to pay sales tax. Once your application is received, you will be issued number plates to attach to your vehicle. Once insured and registered, you are ready to get out on the road. Registering your vehicle is usually done in the same place where you received your driver’s license.
Pump the Brakes
Once you have gone through the above steps, you are legally allowed to drive. But there a few things you should consider before hitting the road:
- Don’t drive over the speed limit
- Don’t use a cell phone while driving (if you have to, invest in a headset)
- Always wear a seatbelt
- Always indicate when changing lanes
- Never drink and drive
Driving can be fun, but you are not the only driver on the road.
Let’s Hit the Road
Buying a car is as expensive as it is exciting. Don’t get caught up in that excitement and overspend though. Set a budget and stick to it. Being pre-approved on loan helps you stick to what you had planned on spending. If you intend to spend more, you will have to go back to the bank and go through the loan application process again.
You should also keep in mind that, no matter how friendly they are, car dealers want to make as much money from a potential car buyer as possible. Doing your research beforehand will equip you with enough information to negotiate the best deal possible without falling for any sales tricks. If opting to buy a used car, do even more research and make sure that the car won’t break down as soon as you drive off the lot.
Every driver has a story about their first purchase. Was it terrifying or enjoyable? Was it a dream come true or a nightmare? Share your story below.