How to Buy Your First Car: Everything First-Time Shoppers Need to Know
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Thinking about buying your first car is an exciting time. There are so many options to choose from! However, before you start test driving, there are some things you need to know in order to make things go as smoothly as possible. You should know how to set a budget, what banks are offering the best loans, what dealers are the most reputable, and how to become pre-approved for your loan. Today, we’re going to walk you through each of these steps in detail so that you can buy your first car with confidence.
Create a Budget
Deciding on a budget is a crucial first step before you ever walk onto a car lot. You should know how much you’d like to spend and exactly what your bottom line is before you start talking to dealers. The reasoning behind this is that if you’re not certain about what you can afford, you might be tempted or persuaded to try and purchase something outside of your price range.
If that happens, you’ll either be denied the loan completely or you’ll be left with a hefty monthly payment that you won’t be able to manage. In the end, you’ll have more stress than you bargained for, and if you’re not able to make your payments your car could ultimately be repossessed.
So, instead first I suggest that you sit down with yourself first and think about what kind of payment you can manage per month. Examine your finances and understand what kind of wiggle room is available in your budget. You should try to be conservative and save as much additional money in your budget as you can.
For example, if you find that you have $300 you can spend on a lease each month, it would be wise to try and cut that down. You don’t want to be completely tapped out after paying all of your bills. This might mean choosing between a new and used car. Choosing a used car will undoubtedly save you money each month. Once you have an idea about what you’d like to spend then you can have some loan conversations.
Shop for Loans
Do Your Research
After you’ve got a stable monthly price range that you’d like to stay within, you can check out some lenders and see what options they have for you. It’s not a bad idea to do some preliminary research and start to find out what kinds of cars will be available in that range.
However, it’s important to not become set on any one particular car. Once you actually start having conversations with a lender they might give you some insight about why a certain car may or may not work for you. Not to mention, when or if you test drive it later you could change your mind. For the time being, just try to stick to research.
Know How Much You Can Spend
The bank is also going to talk to you about in terms of a lump sum, so you should become familiar with this now. They might ask you how much you’re willing to spend in total and you should know how long you’d like to be paying off the car.
For example, if you settle on a $150 monthly lease payment that lasts for four years, you’re likely going to be paying more than $7,000 total on the car. Taxes, fees, and interest will add a good chunk of change to the top of your loan. As such, it’s good to do some math beforehand and start figuring out both your monthly allowance and how long you’d like to be paying that off.
Again, remember to think about new versus used cars. A used car will mean that you’re paying it off for less time and will owe less in total. Most auto loans are in the three to five year range, but it completely varies depending on the lender. You might be able to do less or more, but only if your bank allows it.
Now that you’ve done some of your own calculations, look around at a few lender websites and see what kinds of lease lengths they offer as well as what additional charges you’ll be looking at. You should know how much you’re going to be paying in interest and how that will affect your loan total. Adding fees and interest to your loan could substantially increase your loan total, bringing you up to a completely new price bracket that you didn’t originally intend for. As such, now is the time to play out some hypothetical scenarios and see which ones you’re most comfortable with.
Know Your Credit Score
The other half of this has to do with your credit score. If you don’t have any other lines of credit in your name, like a credit card, you likely have no credit. This means that banks won’t know how reliable you are yet with your monthly payments. In this case, you’ll likely need a cosigner that has good credit on your lease. This person will be responsible for your car payments if for some reason you aren’t able to take care of them anymore. However, they will also help you qualify for the loan you’re trying to get. As such, now is a good time to start talking to your cosigner about your plans.
How to Build Your Credit
If you don’t think that you can get a cosigner, but you don’t have any credit, you’ll need to look into building your credit by yourself. A credit card is a great place to start. Look around for a bank that offers a low limit credit card, maybe $200 -$500. These are often easy to be approved for, and you can build up your credit score slowly by using one and paying it off regularly. However, it may take six months or more of this type of activity to build up enough credit to be approved for a car loan, so be aware of that if you’re thinking about this route. The longer that you build up your credit, the more likely it is that you can be approved for a larger loan.
Now that you understand exactly how much you have to spend each month, if you can qualify by yourself, and what your total loan will look like (with interest) — you can get to the fun part, shopping! Take a look at cars that are selling around the price range you’re looking for. Decide if new or used cars are going to be a better idea for your budget. Again, it’s important to not get set on any one car. You’ll have to compare cars, their features, their price, mileage, gas consumption and more.
Think about how you’ll be using this car on a daily basis. What are the most important features that you absolutely need? Start with that. This will help you eliminate cars that definitely won’t work for you and are just not worth buying. You’ll likely also find some new features that you didn’t think about which are important to you as well. These are the things you’ll want to know before you actually start having conversations with dealers.
Once you have an idea of what cars you’re looking for, it’s time to do research on sellers. Read reviews of sellers online and make sure that they align with the car you’re trying to buy. Not to mention, it helps if you can find a seller that has a reputation for being fair with people buying their first car. Many dealers will try to upsell you do a newer model or similar car that has more features. Keep in mind that sticking with a used car (if that’s what you prefer) will save you heaps of money. If you have properly armed yourself with knowledge, you’ll be able to stand firm with what you want.
Shopping for your first car can be intimidating though, so it’s not a bad idea to ask someone to go with you. Your cosigner or someone who is experienced with buying cars would be a great choice. They can help back you up and not become steered in the wrong direction. In order to combat this, you should be prepared before you decide to reach out to a particular dealer and make sure that you know exactly what you’re looking for.
The same goes for a private seller that doesn’t work for a dealership. You should do research on the car they’re selling, the features it has, and the condition that it’s in. You should know if they’re selling for a fair price and if that will align with your financial plan. Just like with the dealership, you should bring someone with you. An experienced person can help you negotiate and just make sure you’re safe in general when buying from a private seller.
Get Pre-Approved on Your Auto Loan
Since you now have an idea of what kind of car (new or used), price range, and monthly payment you’re wanting, you can reach out to one of the banks you researched earlier. Pre-approval is a really smart idea before you start working out any details about a particular car. It’s the bank saying that they will loan you “x” amount of money for this certain type of car. They will ask you to show proof of income, provide an example of the car you want, and they will check your credit. If all of these areas check out, they will give you the stamp of approval to go test driving.
This will also make things much cleaner when you’re ready to pull the trigger on a purchase. Once you’ve decided on a car, you’ll just need to get the dealer in contact with your bank to finalize all the paperwork. If you don’t do this step, you’ll have to wait and see if you’re approved before anything can go through. It takes more time, it’s messier, and it’s a complete gamble whether or not you’ll be approved. So, once you’re pre-approved, you can go ahead and test drive.
Here’s where the real fun starts. You get to actually look inside cars and see more than pictures online. However, don’t let a polished exterior fool you. You should be looking at more than the body of a car when you’re deciding on which one to buy. If you’re looking for a used car, make sure that you ask questions about the car and any previous owners. You should know if the car has been repaired or if it was in any accidents. Of course, they should tell you if the car has any current problems as well.
In addition, take a close look at the seats, try out all the features of the car to make sure they work, and make sure it feels physically comfortable for you to ride in. Your dealer should disclose how many miles have been put on the car and when the last time it was tuned up was. Ask them how old the tires are and if a new battery has been put in recently. Pop the hood and take a look at the engine — it should be fairly clean with no signs of corrosion. Ask the dealer how it runs and make sure it is safe to drive before you actually do so.
As long as all of these things are up to standard, take it for a ride and make sure you listen to the car. Everything should sound like it’s running smoothly and it shouldn’t have any problems changing gears. Make sure that the breaks work properly and that the brake pads aren’t getting too worn out. Although some of these areas aren’t too expensive to fix on your own, you should make sure that you know what you’re getting into before you buy it. If the seller claims that it’s ready to drive home today, it should be.
Close the Deal
If all goes well and you love the car, it’s time to seal the deal and buy the car. However, you should be aware that in almost every situation sellers will increase the price on a listing. They will usually bump the price to the top of the range available for the car. Sellers plan to do some negotiating and as such they try to set the asking price higher than they know they will get. This means that when people start to negotiate the price, they will actually land on the number they originally wanted anyway.
Knowing this information, you should always challenge the asking price of a car. Don’t ever let your seller gauge the price of the car by asking what you’ve been pre-approved for either. Your pre-approval is between you and the bank and it doesn’t have anything to do with your purchase of a particular car. Your goal should be to get the car at a fair price, not to necessarily use all of the funds the bank offered to you if you don’t have to.
If you’ve already done research on this model of car, you should know the average price range that it sells for. Some sellers might tell you right away that they aren’t going to budge, while others are totally open to negotiation. Try to feel out the situation and if you feel that they are open to it, put a fair offer on the table and you can both go from there. Your cosigner or shopping buddy might be able to help you in this department as well.
In the end, there is no reason why you can’t get a great car at a fair price. Your first car buying experience is always an exciting adventure and it’s something that you’ll always remember. Remember, you have to be willing to put in the time to research the cars that will practically fit your life and budget. Researching dealers, test driving, and pre-approval are also all important aspects of this process that shouldn’t be ignored. If you are focused and dedicated to getting the best deal and you follow these steps, you will undoubtedly walk away with a car you are proud of.
Image Source: https://depositphotos.com/
Trisha is a writer and blogger from Boise, ID. She is a dedicated vegan, an avid gamer, cat lover, and amateur SFX artist.
This post was updated February 13, 2018. It was originally published January 15, 2018.