Buying your first car is an exciting process. Not only does a car give you freedom of mobility on your own schedule, but it’s also something you can take pride in owning and maintaining.
Aside from buying a home, a car is likely to be one of the biggest purchases you’ll make over the course of your life. If you’re a first-time car buyer, here are our top financial tips to consider as you look for the car that’s right for you.
1. Know your budget
How much money are you hoping to spend on your first car, and how much can you put down right out of the gate?
According to Autotrader, first-time buyers are encouraged to put down at least 10 percent of the full price of the car at the time of purchase. If you’re able to put down 20 percent, even better—that’s the recommended down payment.
In other words, if you’re hoping to buy a car that costs $20,000, you should aim to put down at least $2,000 up front, but $4,000 would be a better financial move. This is because the remaining amount will be borrowed, and you will pay interest on top of the base amount. The more you can pay up front (without interest), the better, so long as you are still able to comfortably meet your other needs.
2. Match the car to your budget and lifestyle
Once you determine the level of down payment you can afford and the amount you plan to borrow, it’s time to research your options to find a car you like.
If you don’t have a particular model or manufacturer in mind, start by considering cars that fit both your budget and your lifestyle. What would best meet your needs? If you have a long commute, you might consider a smaller sedan with excellent gas mileage to help you save money on fuel. If you’re looking for a family car, you might look for something roomier that also has top safety ratings. Do you take lots of road trips, ski vacations, or camping trips? You may need a car that comes with ample trunk space, has seats that fold out of the way, and offers customizable roof rack options.
As you search for your first car, keep in mind that certain cars (e.g., Teslas and Volkswagens) can only be serviced by specific manufacturers that may or may not have locations near you. If a car you’re considering falls into this category, make sure you have a nearby service shop you could go to if you needed any repairs.
3. Consider buying a used car
A recent CARFAX report found that the average new car loses 10 percent of its value the moment it’s driven off the lot for the first time. Another study found that new cars lose 63 percent of their value after five years. If you’re looking to save and aren’t tied to the idea of buying brand-new, you might consider a used car instead of a new one. You might save thousands of dollars by purchasing a used version of the car you have your eye on, and many used cars show almost no signs of prior use or ownership other than having a few miles on them already.
4. Shop dealerships and private sellers
Should you get your first car from a dealership or a private seller?
When you buy a car from a dealership, you get a warranty—even on used cars, in some cases. Cars sold by dealerships tend to be in great shape, having been thoroughly inspected and repaired if necessary. Dealerships may also offer certified pre-owned vehicles that have made it through several tests and come with a special warranty.
However, the peace of mind and additional legal protection you might get when buying from a dealership can mean paying a higher price than you’d get from a private seller.
On the other hand, there is often less pressure when you buy from a private seller. Most sellers will use the trusted Kelley Blue Book and/or NADA Value to determine the price of the car, so you might have an easier time negotiating a deal, especially if you’re buying from a friend or family member.
Private sellers, however, don’t have to comply with the same laws that dealers do. You won’t get a warranty, and it might be tricky to determine whether the car is in as good of condition as they say. In that case, it can be helpful to do some research or consult someone who knows more about cars to learn what questions you should ask and what red flags to look for.
Whether you choose to buy from a dealership or a private seller is a personal decision—and there’s no wrong answer. In some cases, buying from a dealership is the most reliable bet. In other instances, private sellers may deliver more value. Investigate both options to come to a decision you’re comfortable with.
5. Take out an auto or personal loan to support the purchase
Most car buyers don’t have enough savings to pay for a car in full. And even those that do might prefer to take out an auto loan so they can hold onto more of their cash and pay off the remaining balance over time. Securing an auto loan also enables you to build your credit score along the way as you make your monthly payments.
6. Negotiate, negotiate, negotiate
When you’re buying a car, there’s almost always some wiggle room built into the price. Whether you’re buying from a dealership or a private seller, don’t pass up the opportunity to negotiate. Need some tips on the negotiation process? Check out this article.
Your first car awaits! Buying a car is a major financial commitment. Start by determining your budget, and remember that there are auto loan options available to you to help finance the purchase.
Need advice on financing your first car? Contact us today! We look forward to helping you through the process.