So, you’re buying your first car. Congratulations! For many Americans, buying a first car is a rite of passage into adulthood. But these days, many young adults choose to work and ride public transportation all the way through college, sometimes well into their twenties before they decide on the best first car to buy.
The way to buy your first car depends on your income, the local market, your driving needs and many other factors. Before you venture out into the wilds of dealerships and car trade ads, make sure you and your car buying partner look over this list of tips for how to buy a first car. Let's start.
1. Strongly Consider Buying Used
Even if you’re already working a stellar job as an adult, or your parents are extremely generous, you’re probably wondering, "What car should I buy for my first car?" Well, you're probably going to buy a used car. This is good. In fact, you might want to keep buying used vehicles for the rest of your life, even when you’ve made your way up the pay scale. Cars lose approximately 25 to 40 percent of their value in the first two years off the lot, according to financial adviser Jeremy Vohwinkle. That means that when you take out a loan to buy a new car, you already owe more than it’s worth – pretty much the second you drive it home. That’s not good if you hit hard times and need to offload it later, only to find you owe $3,000 more than any buyer will pay.
The good news is that these days it’s not hard to find a reliable set of wheels that gets you there quick and doesn’t elicit mockery from the mean kids.
2. Set a Budget, Pick a car – In That Order
The question most of us want to ask is, “What car should I buy?” It’s natural to start judging all the cars you pass on the street on a scale of “Want Right Now” to “Never in a Million Years,” but it’s much too soon for that. The first question you need to answer is, “What is my budget?” Not nearly as exciting, maybe, but at least it narrows down the field.
Kelley Blue Book puts it this way, “Look at your cost of living in all the more important areas, like shelter, food, health insurance and Happy Hour. Once those are calculated, the remainder could be spent on a car payment, fuel, car insurance and – for cars without a warranty – mechanical maintenance.” Your particular budget may look something like this if you live in a college apartment and make around $1,000 per month at a part-time job:
- Rent: $300
- Food: $200
- Health insurance: $50
- Other/Leisure: $150
That’s $700 per month, so far. If your tuition is covered, that leaves $300 per month to put toward your car payment, plus insurance, gas and maintenance. Depending on your age, history and the car you purchase, insurance might cost you $100 per month. That leaves $200 for car payment, gas and upkeep. If you don’t drive far, you might get by with $75 per month for gas and maintenance. That leaves only $125 per month for a car payment.
That doesn’t sound like much, but if you’ve saved up a decent chunk of that extra $300 income each month for a year or so, you could have $3,000 to $6,000 to use as a down payment. In that case, $125 per month or even less could get you a perfectly respectable first car. You could find something reliable for $10,000, pay $6,000 cash and finance only $4,000.
For that matter, you could search online classifieds and find a car you can afford to buy with cash and keep the extra monthly income for repairs and road trips. This is an especially great option if your monthly income is spotty, like if you do seasonal work or keep variable hours. It’s also good for those who are mechanically inclined or have a willing relative or friend to help with a worthy fixer-upper.
3. Get What You Need
Once you know your price range either for financing or cash purchases, you can evaluate your needs. These are the features your first car absolutely must have so that your life runs smoothly. It helps to make a list so that those shiny bits and baubles don't sweep you away on the used car lot. Jason Fogelson writes for Forbes, “Make a list of the features that you absolutely must have, and don't allow new features to creep onto your list unless they are within your budget.”
For example, do you need great gas mileage in order to stay on a strict monthly fuel budget? Room for extra passengers or cargo? All-wheel drive for snowy winters? Extra airbags so your mom won’t worry too much? Write them on your list and then stick to it as you research and shop. This is the second step to narrowing down the seemingly endless options on the Internet and the car lots.
4. Do Your Homework
You know what you need. Now you need to know where to buy your first car. If you’re purchasing from a friend or neighbor, this part is easy. Just make sure you follow local laws regarding a bill of sale, title transfer, sales tax, insurance and registration.
The most important concept you need to embrace when buying your first car is research. Kelley Blue Book notes, “There is, at this point, an amazing amount of both information and perspective on new cars and their late-model alternatives. Once you've digested it all, balance it with your gut instincts – or those instincts of someone whose gut you trust.”
NADA Guides and other publications like Kelley Blue Book can help you figure out how much your first car will cost, based on mileage and wear. Then you can narrow down the make and model options and find out more about each one. Thanks to online reviews and auto repair forums, you can find all kinds of dirt on the cars and trucks you like best. Other owners can tell you what parts break first, how it rides and whether that too-good-to-be-true gas mileage number really stacks up to daily use. Just make sure you know what you want and why before you walk into a used car dealership lot, or the sea of choices you don’t really need might completely sweep you away.
Don’t forget the most important research method of all: the test drive. Fogulson advises that a thorough test drive will take you down bumpy back streets and high freeway speeds so you can get a feel for the car’s capabilities and know if it’s a good fit for you. Don’t feel pressured to hurry through this step, as it could save you from big regret later.
5. Get Your Own Financing Options
Jack Nerad, Executive Market Analyst at KBB.com, believes that failure to pre-shop for financing is the worst mistake new car buyers make. Once you’re in the dealership office with a salesperson or a financing agent, the pressure to compromise and accept a sub-par loan gets intense and very confusing.
Take a cue from the financing experts, and stop by a local credit union or bank before you talk to any salespeople. A loan agent at the credit union can usually offer you better rates, awesome extended warranties and no-nonsense advice about how much you should borrow and how much to put down up front. Once your credit union officially pre-approves you for used car financing, you can use those numbers as your armor in the crazy world of used car dealerships. If the salesperson offers better financing than your bank or credit union, great! If not, you’ve got options in your back pocket. This empowers you to say “no thanks” and to find a better deal across town when you're buying your first car.
6. Focus on the Right Numbers
Never tell a salesperson how much you plan to pay each month for your first car. Financial advisor Jeremy Vohwinkle explains, “When negotiating a price, the dealer can do a number of things to make almost any vehicle fit your budget. They can do this by adjusting the interest rate, offer you a longer term on the loan, or restructure the financing in a way that creates a payment that fits in your budget.” While it may seem innocent, in the end it can add thousands of dollars and years of extra payments to your first car loan.
Instead of offering a monthly dollar amount, stick to total price. If you are willing to pay $8,000 for the Camry on the lot, stick to $8,000 in the negotiation, plus taxes, title and registration. If the car lists for $9,000, you can try to talk the price down to $8,000 or go elsewhere – you can always come back if you need to. If it lists for $8,000, try to get taxes and legal fees included in the price. Just remember, there are literally thousands of cars in your ZIP code just waiting for you to buy them. You don’t have to compromise your budget for any vehicle or dealer.
It helps to bring an experienced buddy along to give you moral support, especially an older person who has purchased enough cars to last a lifetime. If you have an uncle who also knows mechanics and can look under the hood for you before you purchase, it can make buying your first car that much easier.
7. Get Covered Before You Drive
You’re going to need insurance. Try not to take it personally, but your insurance company might not want to give you a great deal. Insurance providers like proven, predictable, stable drivers, because they pose less risk of a costly accident and payout. You, on the other hand, are a first time buyer, probably young, and probably not as experienced behind the wheel as other drivers. That sends up red, expensive flags.
The good news is that you can still find good prices on car insurance if you’re willing to shop around for it. Or you can contact a local, independent ReduceMyInsurance.net agent and let the agent do the shopping around. It might be cheaper if your parents can still add you to their policy, especially if they cosigned on your auto loan, or it might be cheaper if you get your own coverage. An independent agent can usually tell you what the best deal is going to be in your situation.
8. Don't Overpay, and Don't Underinsure
Your state has minimum requirements for liability coverage. This is insurance to pay for injuries or damage you might cause other people and their property. If you live in Texas, for example, you have to have coverage of at least $30,000 per person in an accident, $60,000 per accident in total and $25,000 per car in an accident. Your policy will list these amounts as 30/60/25.
While $60,000 per accident might sound like a lot of coverage, it can actually add up to very little if you are involved in a multi-car pileup or if you run into a very expensive vehicle or if several people suffer severe injuries. And guess what happens if the total cost of an accident is higher than your coverage limits? Yep. You have to pay the difference, even if you’re a starving college student or a newbie intern in your field. If you have no assets to seize, the plaintiff can go after your future earnings for an indefinite length of time, until that debt is paid.
That’s why liability coverage is good to stock up on, as much as you can afford. If you’re financing your car either from the dealership or a credit union, you'll also need collision coverage and comprehensive coverage, in most cases. This covers repairs to your car if you crash it, someone steals or vandalizes it, or the weather damages it. Even if you pay cash for your first car, you might still want collision and comprehensive coverage, unless you have enough cash in savings to get your baby back on the road after a major mishap.
If you go with a big brand company that spends millions on advertising every year, there's a good chance you'll overpay for your car insurance. But an independent agent can compare lots of different policies and prices from all kinds of companies to find the one that offers you the most coverage for the best price.
Go Forth and Conquer
Now that you know how to buy and insure your first car with confidence, get started! Enjoy the adventure. Don't settle for anything less than you and your budget demand.