Buying Your First Car

A sign of freedom, independence, and (literal and figurative) mobility, your first car is an exciting financial and personal step. That being said, if you simply jump into the process, your first car purchase may feel stressful, overwhelming, and surprisingly expensive! Just like with any big purchase that will likely be with you for years to come, approaching the car buying process in an educated, thoughtful manner is incredibly important. After all, you’ll be relying on this purchase to get you to some of the most important places and times in your life.

While there are many different components to the car-buying process, breaking it down into three main steps can make it feel more manageable while also ensuring that your approach is well though out: choosing the car, negotiating and navigating the purchase process, and paying for the vehicle.

Choosing the car
Start with two questions: What car do you want? What car do you need? For most, a first car is not a dream car: That’s not to say you shouldn’t like your first car, its simply that accidents, dings, spills, and other unexpected occurrences will happen in any car, and even more so as you’re getting use to driving your own car on a regular basis. Depending on your financial situation, it may be best to consider what you really want against what you really need and find a good middle ground.

Of course, safety and reliability should be at the top of the considerations list, followed closely by cost of ownership (the costs outside of the purchase itself: registration, insurance, gas, oil, tires, repairs, etc.). There are many websites and publications that can help you with this research. As you consider the overall cost of your vehicle of choice, keep in mind that most personal finance experts recommend that you keep all transportation-related costs to 10-15% of your monthly income.

New, used, or leased? Once you’ve determined what car you intend to get, a following question will be whether you should buy it new, used, or lease it. A large component of this decision will likely be the overall and monthly cost of the purchase. Beyond that, there are pros and cons to each option, some of which are listed below. Take your personal situation into account to determine whats right for you.

 

Pros

Cons

New

Likely more reliable and covered by a warranty
No prior owner/wear and tear
Newest technology and safety features

Expensive
Steep value depreciation
Higher insurance and registration costs

Used

Often the most cost-effective buying option
Potentially cheaper insurance and registration
Typically, slower rate of depreciation

May lack current technology/safety options
Unknown wear and tear from previous owner(s)
Potentially decreased reliability/increased repair expenses

Leased

Likely a reasonable monthly price option
Maintenance often covered within lease contract
No need to sell vehicle

No ownership at the end of the lease
May require a significant down payment
Possible mileage limitations (and fees, if overage occurs)

As new and leased cars have not typically been driven extensive amounts prior to your purchase, there is little reason to be concerned with mechanical breakdown right off the bat. However, if you are considering a used car, its recommended to have a qualified mechanic inspect the car prior to purchase. Also, when it comes to used vehicles, a Vehicle History Report will inform you of the number of previous owners, whether an inspection of the vehicle was ever failed and whether the car was ever stolen, salvaged, or recalled.

Navigating the purchase
If you’ve chosen to purchase a used vehicle, you will either be doing so at a dealership or via “private party.” A private party sale is when one person buys another person’s property. In this situation, hard-core sales tactics are rare and negotiations may be easier, as the sale price is set by the current owner/seller and they have the ability to accept or reject an offer at their discretion rather than being beholden to a dealership or manufacturer (keep in mind, however, the “cons” listed above). At a dealership, no matter used, new, or leased, car salespeople are infamous for their high-pressure sales tactics. Make sure that you approach the process with a strong understanding of whether you intend to buy or are simply doing research, what you want, and what you’re willing to pay. Several websites can give you price quotes before you head into a dealership; take information on competitive pricing and be clear with the sales person. Remember, this is a purchase (and, perhaps, payment) that will probably be with you for years; you deserve something you are comfortable with, not bullied into.

Deal with one component at a time: When discussing the price of the vehicle you’d like to purchase, only on that. Any discussion about financing or trade-in should be reserved for after the price has been settled on. Also be aware of dealer add-ons like Guaranteed Asset Protection (GAP), rust-proofing, extended warranties, and other options: They can potentially be valuable to you (and are certainly profitable for the dealer) but they also increase your agreed-upon price substantially. Do your research on these products before going to the dealer, determine whether they hold value to you, and go in knowing what options you want and which you don’t. Last but not least, do not feel obligated to the dealer or the salesperson: The more money they get you to spend the more they make off of you. Walk away if you are not getting the price, options, or treatment you deserve.

Paying for the vehicle
When it comes to paying for the car, ideally we’d all be able to save up the cash and pay for it out of pocket. Doing so makes the car completely yours without needing to go through the loan process or pay any interest. While this is definitely an option if you have the savings available, most people do not pay cash, and must borrow at least some of the funds from a financier, such as an auto financing company, bank, or credit union.

Most commonly, you can make a down payment and get a loan for the rest. Auto loan terms may range from 24 to 84 months and there are many online resources that can help you calculate what your monthly payments would be depending on the size of the loan, its length, and different interest rates. It is often recommended that you get approved for a loan before going to a dealership; that way, you know exactly how much you have to spend as well as ensuring you don’t have to rely on dealer financing when the time comes which may be more expensive or limiting than outside financing.

If you choose to lease a car, your payments are much like going through the dealer for financing. Depending on the lease deal, you may have a substantial “due at signing” amount (kind of like a down payment) or none at all. Keep in mind that, while you make monthly payments for the duration of the lease term – usually 3-4 years – you never own the car and must return it (or buy it) at the end of the lease.

Purchase or lease, private party or dealer, always ensure that you understand all the details of any contract or financing agreement before signing any documents.

In conclusion
Your first car should be exciting and open up a world of possibilities for you. Ensuring that you approach the process thoughtfully and with a sense of purpose and stability will help you make the best choices so that this purchase can add to your life for years to come, even beyond the life of the vehicle. This is your car, your purchase, your financial future; make sure you drive off into the sunset!