Guide to Buying Your First Car

Buying your first car can be intimidating. Maybe you’re a teenager, or a twenty-something young person about to go to College; a city dweller who’s always used public transportation but needing a car soon; or maybe you just never needed a car until recently. The process could be intimidating. You may have read a lot of articles about sleazy car salesmen, or people who have had bad car buying experiences; or you may have frequented the review section of car dealership locations on Google Maps and read a million horror stories.

Don’t let your anxiety rise. At the same time, you should do your due diligence. Read, research, ask questions, and cover your bases even before you start looking for your first car.

Here is MyFirstCarGuide.com’s Guide to Buying Your First Car.

A Table of Contents is provided for you. You have the option to read through from top to bottom. Or if you’ve already did some reading and research, feel free to skip and read the section you need. At the end of this article, there’s the option of downloading this article as a PDF, which you can save on your device as a ready reference.

Determine your need.

Most of us grow up watching movies with Fast Cars–you know, James Bond movies, the Fast and the Furious, and just about every action movie out there has an awesome car chase or two. You may have imagined yourself driving real fast and defying the world speed record in the highways or back roads of your hometown. But let’s set aside your dream car for now and take a turn toward the practical.

You’re probably reading this article because you need a car, and you need it soon. Dive down a little deeper. Answer the following questions and check what you will need a car for:

Do you really need a car?

  • Are there alternative modes of transportation that you can use?
  • Is the train or bus going to be sufficient for most of the traveling you’ll need in your city?

How will you use your car?

  • Are you going to College soon?
  • Did you start a new job that requires you to use your car frequently? Or do you intend to sign up as a Ride Share (Uber or Lyft) driver?
  • Do you simply want to have more freedom of movement and mobility?

You also need to take into account the environment in which you’ll be driving: dirt roads, highway, or a lot of city driving? Do you live in a place with really heavy snow and ice or does it get really hot in the summer? What safety features do you want in your car? Will you install car seats? Will you be towing anything? Or do you want a car that will be really fuel efficient?

By answering these questions, you will be able to assess your needs and this will help you come up with the criteria for choosing your car.

If you are going to college and you live in a college town without good public transportation, you’ll need a car to move around and go to class. In this case, a smaller car like Honda Fit may work for you. However, if you intend to use it for hauling furniture, logs, or some equipment, you may need a pickup truck, or a SUV. If you’re considering becoming a ride-sharing driver, then a nicer car with plenty of space for passenger and cargo may be what you need.

Assess your financial capability.

In an ideal world, you’d be driving that Mustang 5.0, that Chevy Camaro, or the newest release from Tesla! But the truth is, you gotta deal with the realities of budgeting and how to keep payments in your car amid all the other bills you have to pay.

Did you save up for some downpayment? The bigger the amount you’re paying as a down, the lower your monthly payments will be. You will also need to take into account the monthly fuel cost

Pause for a moment and jot down the amounts of money that you can set aside for the following:

  • Downpayment: $__________
  • Monthly payment: $________
  • Ave monthly cost of gas:$_______
  • Ave monthly insurance: $_______

According to the Motley Fool, the average American uses 656 gallons of gas every year. That is about 54.67 gallons per month. As of this writing, the mid-grade gasoline price is $2.00. That’s about $109.34 per month. This amount may be high for you and will depend on how you’ll use your car, how often, and how far you want to travel regularly.

You may want to take a good look at your finances to prepare yourself for the cost of car ownership. It is better to be prepared and to know what you are getting into, instead of just blindly going along and becoming surprised with all the costs related to maintenance.

Lease, Buy New, or Buy Used?

You really have three options in securing a car: lease, buy a new car, or buy a used car.

Lease

If you need a car that really looks cool and expensive, you can lease. You will be able to do that with less amount of money if you lease. Many leases usually last for three years, and this means that most maintenance will be covered by manufacturer warranty. Although you will still be responsible for every oil change, rotation of tires, and all the manufacturer-recommended maintenance.

But if you intend to lease, you should be very careful in maintaining and documenting the service that will be done on the car. If you don’t you will pay penalties when the lease is up. Another limitation of leasing is that you will be restricted in the number of miles you can drive. Usually, a lease provides for 9,000 to 15,000 miles annually. If you drive more than this limit, you will be liable to pay for a per mile fee.

 

Buy a New Car

Advantages of buying a new car.

Buying a new car, of course, has many advantages. Chief among these advantages is that it will be covered by warranty for at least 3 years. You won’t need to look after big maintenance issues because it is expected to perform well and expected as long as you take care of it. You’ll also get access to the latest technology such as bluetooth integration, parking assist, and a few other perks that may not be present in older models. A new car also tend to have better mileage and emissions control.

This car will also grow with you as you learn about the basics of driving and keeping a car running. You can customize it any way you want–choose the color of the car’s body, choose the interior trim you want, and include any accessories before you drive it off the dealership.

More importantly, it is easier to buy. Less research is needed because a new car comes with the backing and guarantee of the manufacturer and the dealership. A used car, on the other hand, means, that you’ll be spending some time researching reliable car make and models. You will also need to research the history of the specific model you are planning to buy.

Disadvantages of buying a new car.

The major disadvantage really is about cost. The selling price of a new car is high! And if you wanted all the trim and all the latest technologies, you may end up paying a huge price for your new car. And when you drive off the dealership, the depreciation starts to hit. Although a new car is covered by warranty for the first three years, that is also when the value of the car is lost.

For your first car, a new one also tends to have higher insurance premiums. When you buy a new car, you really need to take a long, hard look at your finances to make sure that you can afford it.

Buy a Used Car

Advantages of buying a used car.

The last alternative is to buy a used car. It is less expensive than buying a new car and insurance rates tend to be lower. Someone else has already taken the biggest depreciation hit on the car. That means that you may be able to sell your used car for almost the same amount or slightly less than the amount that you bought it for.

Besides, the engineering and manufacturing of cars have so improved that most modern cars are reliable and expected to last for at least a decade or more. But if you want to reduce the risk of buying a defective used car (usually called a lemon), car manufacturers also offer Certified Used cars that are slightly more expensive. But it means that they had been thoroughly inspected by the manufacturer and these cars are certified to be in really good condition.

Disadvantages of buying a used car.

If you are buying a used car, you will need to do more research on the most reliable cars and will also need to look at the specific car you want to buy. This needs being able to access Carfax or AutoCheck to look at the history of a used car. If you are buying a used car, you need to make sure that it is accident-free, or at the very least its title had not been rebuilt.

There’s a chance you might buy a lemon. There are shady car sellers out there and there is the possibility of ending up with a car that has too many issues. If you end up with one, it will need more maintenance, which leads to more expenses, and will ultimately lead to frustration and endless headaches.

It may be a minor thing, but if you buy a used car, you may not get the color that you want. You’d need to settle for the available colors that are being offered.

Here are a few articles to help you identify the most reliable and the least reliable cars according to ConsumerReports.com.

For your first car, we recommend buying a reliable used car that is about 3-5 years old. By doing this, you will save some money on the price of the car, on your insurance premium, and the car still has a lot of life and mileage left for what you will use it for.

Here’s  post on my reasoning why I bought a used car: 5 Reasons Why I Bought a Used Car.

Financing Your First Car.

How much should you spend on your first car?

A lot of personal finance bloggers and gurus would not consider buying a car as an investment. Instead, it is a liability, which you will need to spend money on.

Whatever they say, though, in many places in the USA and around the world, buying a car is the only way for people to move around from one place to another. Many cities in Europe have robust transportation systems that include trains and buses. But in the USA, only the biggest cities tend to have railways. Many suburbs and smaller cities have limited public transportation options.

If you plan to buy a new car, expect to spend at least $16,000. For cars that are on the higher end of the spectrum, you can expect to spend around $20,000 and up. For a used car, you can spend between $5,000 to $15,000 depending on the year, make and model of the car. As much as possible, buy a car that is 3-7 years old to avoid the potential issues of an older car with higher mileage.

Save as much as you can for a down payment.

If you pay a down payment, you will reduce the amount of money you need to finance. This will help you save money over the long term. Absolutely avoid the no-downpayment option. You will end up paying so much more in interest because of this. Try to pay 20% of the price of the car, but most dealerships would accept lower downpayments; besides a 5% downpayment is better than 0.

Shop around for good auto loans–before you go to the dealership!

Look for good auto loans from reputable banks or finance companies in your area. A lot of national, state, or local banks may offer good rates and payment plans. The good thing about local banks is that they tend to be more personable and more willing to help people in the community where they operate. But bigger banks tend to be more stable and reliable.

It’s important to secure a pre-approved auto loan even before you go to the dealership!

This will help you negotiate a better deal. They can offer you a deal at the dealership and you can accept it if it’s better. But having a pre-approved auto loan will help you maximize your options.

What if you have bad credit or non-existent credit?

If you’re a teenager, you will probably have non-existent credit. The same is true for immigrants and non-resident aliens who have recently moved to the USA. But if you have made some bad decisions or if you’ve met some financial challenges in the past, having a bad credit will impact your chances of getting a good auto loan.

The sad truth is, if you have bad or non-existent credit, you will be offered interest rates of 20% or even higher! That’s crazy, I know, but that is how the car financing industry works.

Ask a friend or family member to be your co-borrower.

The easiest solution is to find a co-borrower who will be willing to back you up. For teenagers, this is easy. Mom or Dad, or any other good family member can co-sign the loan for you. But you need to take care of that trust and make sure to pay your monthly payments.

Secure an auto loan from a Credit Union.

This is probably the best option, even for those with good credit! Credit Unions tend to offer auto loans with lower interest rates. Not only that, because they have smaller operations, they tend to have better customer service. One of the problems you may encounter, though, is that credit unions have strict criteria for admitting people as members. They can only accept certain people–members of an association, working for specific companies, or members of a specific kind of people (i.e. veterans, teachers, etc).

But once you become a member, you will have access to better interest rates. MyFirstCarGuide.com has published some articles about getting a car loan from a credit union:

Last option: Buy Here Pay Here dealers

If you have bad or nonexistent credit, your last option is to buy a car from “Buy Here Pay Here” dealers. You will see them on car finding websites such as AutoTrader, CarsDirect, and on Craigslist. The way it works is that these companies will sell you a car and they usually have in-house financing. In some cases, you will need to show up personally at their office to pay your monthly payments. They also tend to be more strict with the payment deadlines.

Go to this kind of dealers only if you’ve exhausted all your options.

Research is important

What happens when you don’t research before you purchase? This is what exactly happens when you head straight to a showroom and buy yourself a car without any research:

  • Mostly you will end up paying a lot more than you should have
  • Might end up buying the wrong car or might even buy a “bad” one
  • Might go for high paying finance, which you might not be able to pay later and end up in a mess eventually.

How to get a good deal with a private seller or at a dealership.

Take it slow – Never show you’re eager, desperate or over excited to buy your first car. Moreover, make sure you act as if on your first date, take things very slowly, be careful even a bit hesitant, somehow this dating style works wonders when dealing in car business.

Do your homework – The rule of thumb is, never go out in the market without doing your homework first. If you already know how to go about with things it becomes impossible for car dealers to fool you.

Don’t buy a car on first sight. Love at first sight sounds good for movies. But for cars, it rarely works. Even if you happen to really like the car, wait and compare it with other cars and then come back if you feel it’s a good buy.

Save on showroom prices. Many firsthand cars from showroom also come at a low price if you buy a year older model. So, find such deals and make a choice.

Get your auto loan from a credit union if you have access to one. Here are two articles on how you can do that;

 

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