First Time Car Buyers: The 5 Steps Every Buyer Should Follow
If you are considering purchasing your first car – congratulations! Making such a large purchase is a huge achievement and something to be proud of. We’ve put together some tried and true advice for a 1st time car buyer. Follow these five steps to make the process simple and avoid common mistakes.
Determine your budget.
If you want to make a large purchase, your first step should be to calculate how you’re going to afford that purchase. Vehicles are expensive. Just consider all of the average costs.
- New car price (source): $34,968
- Annual car insurance (source): $907.38
- Annual fuel costs (source): $1,400
- Annual maintenance costs (source): $1,200
These averages can obviously change based on a variety of factors. You may buy an older, used vehicle that’s only $10,000. If you’re young, the annual insurance costs could be higher. Those costs also aren’t including any state specific taxes, titles, and/or tags. Take Pennsylvania for example.
- Title transfer fee: $53.
- Lien recording fee and title issued: $78.
- Sales tax: 6% of the sale price or market value.
- Registration fee: $37
- Annual inspection: varies by provider
It’s vital that you consider all the costs associated with purchasing a car before you shell out any money. One way to determine how much you can afford is to create a monthly budget. Track your income and expenses and see where you have room to spare. Knowing how much you have to spend will be the largest factor in determining which car you can purchase.
Prioritize your wants and needs.
If you’re a first-time car buyer, you probably won’t have the budget to afford your dream car. However, a car without all of the bells and whistles can still meet your basic transportation needs. Ask yourself these questions to figure out your priorities.
- How will I be primarily using this vehicle? Are you commuting to work or hauling materials for projects?
- What type of storage capabilities do I need?
- How many people will be regularly riding in the car?
- What safety features do I need?
- What technology capabilities do I want?
There are countless other factors to weigh, but it all comes down to what features are most important to you. Having all-wheel drive may be more important than whether the seats are cloth or leather. Also keep in mind that new cars can lose ½ their value within the first five years. It is possible to get a nicer vehicle if you shop for a used car.
Do thorough research.
Before you narrow it down to a short list of options, do your homework. There are an incredible number of websites and resources available to you. You can read reviews, see performance statistics, calculate costs, and more. Here a few of our favorite websites for vehicle research.
Kelley Blue Book – Calculate how much a car is worth
Consumer Reports – Experts test plenty of models to see which is the best in various categories
CarFax – Get a specific vehicle’s history report to see if it’s ever been in an accident or may have other hidden issues
After determining your budget, priorities, and narrowing down some options through detailed research, it’s finally time to take the next major step towards purchasing – finding financing.
Many first-time buyers do not have the cash saved up to pay for a full-priced vehicle up front. The far more common route is to obtain financing through some time of vehicle loan. The lender will provide the funds needed to purchase the car, and then you’ll pay back that amount plus interest on a monthly basis. The two most popular places to find financing are the dealer you buy the car from or a separate financial institution, like a credit union or bank.
Dealerships have partnerships with lenders to provide financing on-site. This is to make it as easy as possible for you to leave with a car the same day. It’s all about improving their sales numbers. They also may receive some sort of incentive from these lending partners for bringing in additional business. Because these partnerships are not necessarily meant to benefit the buyer, experts usually don’t recommend going with the dealer financing option.
There may be extremely attractive offers, like 0% interest for 12 months when you take out a loan through them. But as a first-time buyer this often won’t apply to you. First-time buyers may not have enough credit history or a high enough credit score to qualify for these offers. These offers are reserved for a small portion of buyers with extremely high credit scores.
Independent financial institution
The better option is to get pre-approved for an auto loan at the financial institution of your choice. A pre-approval is granted when you apply directly at a credit union or bank. Based on your credit history and application, they will let you know exactly what loan amount you can take out through them and at what interest rate. Remember that you don’t have to purchase a car for the entire amount of the pre-approved loan. If you find an option that better suits the budget you established in step one, it’s always okay to spend less money.
Here are a few of the top benefits of getting pre-approved for a car loan.
- It gives you negotiation power at the dealership. The sales team will treat you like a cash buyer. They know you have access to funds and can walk away at any time.
- You won’t waste time looking at vehicles above your price range. You know exactly how much you can spend, which means the sales team can’t talk you into a higher-priced vehicle.
- You will get the best interest rate possible. Your pre-approval will show you the lowest interest rate you qualify for at that financial institution. Once you’re at a dealership, you can always see if they can beat the interest rate of your current offer or if your lender can update their terms to match the dealer’s best offer. Either way, you win.
What if I can’t qualify for an auto loan?
If you’re young, or don’t have an established credit history. You may need to work a bit harder to find an institution willing to finance you. They may require a co-signer. A co-signer is someone with a long credit history who vouches for your ability to pay back the loan. They also agree to be held responsible for that loan amount if you do not pay it back.
Another option is to see if there are any special auto loan programs for first-time buyers at your local financial institution. For example, AmeriChoice offers a Credit Boost Auto Loan for this specific purpose. Young adults, age 21-25, with no credit history can qualify for an auto loan with only proof of employment. After 12 months of consecutive payments, we’ll even reduce the interest rate by .50%.
Visit a dealership and make your purchase.
The final step is to physically shop for and purchase your new car. You should feel confident stepping onto a dealer’s lot because you know what you can afford to spend, you’ve established your priorities, researched the best options, and perhaps even have a pre-approval to negotiate for a car that day.
Here are our favorite tips for shopping at a dealership:
- Always test-drive your top choices.
- Take a friend or family member who has purchased a car previously and knows what to expect.
- Don’t be afraid to ask questions.
- Visit more than one dealership to compare prices, vehicles, and encourage the sales team to negotiate their prices.
- Never feel rushed or pressured into making such a large purchase. Only sign paperwork when you’re confident in your decision.
You now have the tools and knowledge you need to buy your first vehicle! Follow these five steps and you can make sure you fill your transportation needs without wreaking havoc on your finances.
Even auto loans can go on sale.
Consider getting pre-approved for your first vehicle at a discounted interest rate! Get more information about this limited time promotion here.