Buying a car for the first time can be intimidating, but with the right advice and preparation, the process is easy.
1. Set a budget and stick to it
Like with any other large purchase, know the maximum you’re willing to spend before you start shopping. When you go to a dealership, the salespeople may pressure you toward the biggest monthly payment you can afford. While any budget is better than no budget, negotiating based on your monthly payment may lead to spending more money than you planned on.
A $20,000 loan costs you substantially more to pay back, depending on your interest rate and the way you structure your payments. That’s why you need to know exactly how much you want to pay for a car outright rather than monthly. Don’t let anyone pressure you into just negotiating financing or spending more than you’re comfortable with.
2. Choose your make and model carefully
Before you start shopping, create a list of must-haves.
From SUVs to compact cars, you have a lot of options for your new car, and it’s not easy to pick the right one if you don’t have a lot of experience. Each model year also has options like trim levels and accessories for you to consider.
As you’re deciding what vehicle you want, create a list of must-haves based on what you value most in a vehicle. Think about your ideal vehicle style, performance specifications, seating capacity and added features. Having this list helps you narrow down your search to find a car make and a model that fits your price range and your preferences.
3. Decide whether you want to buy new or used
Deciding between buying new and buying used usually comes down to your budget, but that’s not the only factor. The first year of a vehicle’s life is the worst in terms of depreciation, with cars losing 20% of their value in that year alone. After that, a vehicle loses its value by about 15% every subsequent year. Because of this, some people warn against ever buying a new car.
However, for some people, that extra 5% depreciation isn’t worth the miles that may be on a used vehicle. Plus, new vehicles come with fresh warranties.
4. Shop online and in person
These days you can buy a car online and have it shipped directly to your door without ever seeing it in person. Some people see this as a convenience, but others, especially first-time buyers, might consider this an unnecessary risk. For these people, traditional dealerships might be more comfortable.
You might not know how you feel about a car until you sit in the driver’s seat. When testing out different vehicles and feeling how they drive on the road, you really start to know which make and model is right for you.
While both ways of shopping have their pros and cons, a combination of the two is worth considering. As long as you’re aware of each method’s potential pitfalls, a balanced approach should give you more options and help you find the right vehicle.
5. Shop around for financing
Most people finance their vehicle purchases, meaning they take out loans that they pay back over time. This can be especially helpful for first-time buyers because it helps them build their credit histories.
Getting the right loan requires finding a reputable lender, comparing rates and calculating a down payment. An annual percentage rate under 5% is generally acceptable, but this depends on the market. Each lender sets its own interest rates, which means you can compare offers from multiple lenders to find a lower APR.
Getting multiple soft credit checks in a short period shouldn’t have a significant impact on your credit score — credit reporting companies understand that you’re just comparing your options, not taking out multiple loans. Doing this before you hit the dealership may even make it easier to negotiate the purchase price of your car.
Lenders also set their own terms. Work with your lender to figure out what terms make the most sense for your situation. Shorter loans generally mean you pay less in interest but more every month. Your lender should break down how much your loan will cost, in terms of both principal and interest.
6. Figure out your down payment
The more you put down on a vehicle, the cheaper your monthly payments will be. Some lenders or dealerships require a certain amount down in order to qualify for a specific interest rate. If you have a vehicle already, you may also be able to trade it in for credit toward your down payment.
If you can afford to pay for your vehicle outright, you can skip this step completely, though.
7. Take a test drive
As mentioned above, test-driving a vehicle is one of the surest, easiest ways to figure out what you like as a first-time car buyer. As you test-drive a car, evaluate its:
Take a close look at its exterior and engine bay too. Keep in mind that the salesperson is likely to pressure you to buy the vehicle, so stay resolute until you’re done testing all the vehicles on your list.
8. Research car values
The sticker price isn’t the same as value. Take some time online to figure out if you're actually seeing a good deal or not. Some online car buying sites look at things like mileage, depreciation and buyer information to estimate what cars are actually worth. Some websites also have tools that let you enter vehicle info to get a personalized estimate. This information should let you negotiate for a fair final price.
9. You need insurance and registration
When you’re buying a car for the first time, be prepared to pay for additional costs like insurance and registration to get your car road-legal:
- Car insurance costs vary by state and your needs, but the average cost is around $1,300 a year.
- Registration costs vary by state, with some charging a flat rate and others charging weight-, value- or age-based rates.
10. Don’t forget to enjoy your car
After you’ve squared away all the important paperwork and financial necessities, don’t forget to enjoy your new vehicle. While the car buying process might not always be fun, the potential payoff is worth doing it correctly.
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