Buying your first car is an exciting time – but it can be a stressful one, too. From getting your finances in order to picking a car, negotiating a deal, and driving it off the lot, there’s a lot to learn about the process. There are a number of steps involved in purchasing a vehicle, and in order to be successful, you shouldn’t rush through them.
Let’s take a look at what you need to know as you set out to purchase your first car.
Know Your Financial Situation
The first step on your way to purchasing a new car is figuring out how you’re going to pay for it. In this case, you have two options: paying in-full with cash or financing.
If you’re able to, pay in full with cash. You’ll save money in the long run. And if you’re planning on purchasing an older vehicle with high-mileage, paying in cash might be your only option as many lenders have limits on the age and mileage of a vehicle eligible for financing.
If you decide to finance, you’ll need to take a few additional steps:
- Understand Your Credit: In order to qualify for financing with ideal rates and terms, you’ll need to have a good credit score and a strong credit history. A lower interest rate can save you a lot of money over the life of your loan. You can use ScoreSense to learn more about your credit score from all three credit bureaus.
- Know Your Budget: When you finance a vehicle, you’ll be making monthly payments for several years. Take some time to understand exactly what you can afford each month. In addition to the car payments, you’ll need to factor in insurance, routine maintenance, and gas.
- Save for a Down Payment: Making a down payment on your new vehicle means you’ll be financing less overall and, as a result, reducing the total cost. Aim to put down at least 20% of the total cost to avoid finding yourself with an upside-down loan (when you owe more than the vehicle is worth). A substantial down payment can also reduce your monthly payment amount and lower your interest rate.
- Get Multiple Quotes: When it comes to financing a car, it’s worth taking the time to shop around for the best rates. Check in with your bank or credit union along with 2 or 3 others to get pre-qualified for an auto loan. You can also check with private lending companies. Compare the terms each one offers and then get quotes from the dealership you choose to buy from once you’ve selected a new car. Having a preapproved financing offer in hand once you begin shopping will give you the upper hand when it comes time to negotiate.
Shopping for Your Vehicle
Now that you know how much you can spend and have financing in hand, you can begin choosing what kind of car you want.
- Know What You Need: You might already have your eye on a particular type of vehicle, but if not, you should start narrowing down your options by identifying what you need. You might consider how much seating you require, an ideal gas mileage, or certain safety feature in your list.
- Know What You Want: These are the features that would be nice to have, but aren’t an absolute must in your new vehicle. This might include entertainment features, built-in GPS, upholstery preferences, and colors.
- Research a Few Car Models: Even if you think you know what kind of car you want, take some time to research a few different models, you might find something that meets your needs and wants that you hadn’t considered before. Make sure you dig a little deeper and look into consumer ratings on the vehicle, what the actual five-year cost will be to own the car, and whether or not it’s likely to last long enough to meet your needs.
- Shop Around: Find a few different dealerships that offer the models you’re interested in. You can usually contact the dealer online to find out about pricing, but you should visit in person to take a test drive and make sure it’s something you’re comfortable driving.
- Consider Buying Used: According to Edmunds, new vehicles lose 11% of their cash value as soon as they’re sold, and after five years, the resale value is only 37% of their initial cost. So, buying a used vehicle can be a great way to save money and reduce the overall cost. You can buy used from a dealership or from an individual seller. Just make sure the dealership offers a warranty on the car, and if you choose to buy from an individual, get the car inspected before you complete the transaction.
- Negotiate: Regardless of what type of car you’re buying, you should negotiate the price. Individual sellers are likely to come down from their original asking price, and dealerships may be flexible on the price or offer discounts that are not advertised. Look up the vehicle’s true value on Kelley Blue Book and Edmunds and make an offer that’s about 10% – 20% lower.
Closing the Deal
Now that you’ve shopped around and found the vehicle you want, you’re ready to close the deal. The actual process will vary depending on whether you’re buying at a dealership or from a private seller.
- Dealership: Buying from a dealership is fairly straightforward. If you use their financing options, you’ll sign for the vehicle and the financing at the time of the purchase. Be thorough with the paperwork; take your time to read everything over, and ask about anything you don’t understand.
- Individual Seller: Depending on whether or not the car is still financed, the process of buying from an individual can be a bit more involved. Before the vehicle is signed over to you, the seller will need to pay off the balance of the loan, a process that can be expedited by doing the sale at the bank that owns the vehicle. You’ll also need to fill out a transfer of ownership documents and ensure that the registration is up to date.
After the Purchase
There are still a few things left to do after you purchase your vehicle.
- Obtain Insurance: If you don’t currently have car insurance, you should shop around for rates and buy a policy that begins on the day of purchase. You won’t be able to drive your car out of the dealership’s lot without it, and most lenders won’t finance the sale without it either.
- Complete the Registration Process: You’ll need to register your vehicle with the state. Your local DMV website will have all the information you need about associated costs and what you need to bring with you. You’ll generally need to bring your driver’s license, a second form of ID, and a proof of address.
- Take Care of Your Vehicle: Taking care of your vehicle will ensure that you get the most out of your investment. Performing regular maintenance will reduce wear and tear and maintain the overall value of your vehicle.
The Bottom Line
There are quite a few steps involved with buying your first car, but as long as you take your time, are thorough with your research, and do your due diligence, you’ll have a new car that you can enjoy for years to come.
