Buying Your First New or Used Car
The dream of owning your first car makes it easy to forget all the other responsibilities that come with first time car ownership. If you're a teen, college student, or young adult and have never bought a vehicle before, you may have a few obstacles to overcome. If you haven't already started building your credit history, you may have even tougher obstacles to overcome.
Some car salesman will take advantage of your inexperience. They know first time buyers don't know how to maneuver and navigate through the car buying process, and will attempt to take you for every dime you have.
How you buy your first car will set the tone on how you buy vehicles for the rest of your life. Don't let your emotions and the excitement get in the way of making a smart car buying decision. Follow my guide and use the tools I provide to make sure you're successful, receive a great deal, and avoid dealer scams when buying your first car.
What you'll find in the section:
Who is a First Time Car Buyer?
In the car dealership world, a first time buyer is anyone who has never financed a vehicle through a bank, credit union, dealership, or lender. Even If you've bought a car outright with cash, you will still be classified as a first time buyer. Paying cash for a vehicle will not help you establish your credit history or affect your credit score.
First Time Car Buying Mistakes
The excitement of buying your first car can be overwhelming. All the different makes and models for you to select from, it's like being a kid in a candy store. Don't let all the excitement cloud your judgment and make a huge financial mistake that thousands of first time car buyers make year after year.
- Pay too much for the vehicle.
- Buy a previously damaged vehicle, the wrong vehicle, or both.
- Buy a car that's well over their budget.
- Finance the vehicle at a higher interest rate than they qualified for.
- Don't read what they're agreeing too.
Obstacles Buying Your First Car
Financing your first vehicle can be very difficult, lenders see you as a risk since you've not yet proven yourself responsible to pay back a car loan. Some other obstacles you will have to overcome include:
- What will your fuel expenses be?
- Where will you get an auto loan?
- Budget for preventive maintenance like tire rotations, oil changes?
- Have you saved money for your down payment?
- How much car payment can you comfortably afford?
- Have you compared insurance coverage's and their cost?
- Your interest rate will most likely be higher.
The Car Salesman's Job
Car dealers and their salesmen are professionals. Not all salesmen are crooks, some are very honest, hard working, and just trying to make a living. You just never know who you're going to end up dealing with.
They're job is to sell cars and they're very good at what they do. There's no reason for you to get mad at them. Just keep in mind, they'll take every dime you have if you let them. Some of the realities of the car business include:
- Sell you a car at the highest possible gross profit for the dealership.
- Up sell you not needed high profit aftermarket items.
- Tell you whatever you need to hear to sell you a vehicle today.
- Sell you high profit extended warranties and other insurance products.
- Not to educate you but to sell you something
A dealer is not going to teach you how the car business works. Why would they, when they have a chance to make a pile of money from an inexperienced first time buyer. So what do you do? You're already doing it by reading this article and not contacting a dealership until you've done your homework first.
First Time Vehicle Ownership Costs
There are several factors to take into account with vehicle ownership. A few unpredictable costs would be replacing tires, batteries, chipped windshield, and any unexpected mechanical breakdowns. I'm not trying kill your dream, as long as you plan ahead for these costs, you'll have nothing to worry about.
Nobody Plans To Fail - They Just Fail To Plan
Let's take a look at three major expenses when owning a car, and average them over a month:
Example of One Month of Car Ownership
|$283||=||Average payment for a manufacturer's first time car buyer's program|
|$164||=||Average car insurance payment for a 16-18 year old in 2014|
|$280||=||$35 a tank, filling up twice a week|
To afford $727 a month you must work a minimum of 77 hours at $9.50/hr, before taxes, to pay the total ownership costs one month. Two 40 hour weeks will be enough to cover your ownership costs and you'll have money left over for any unexpected expenses.
You can't rule out preventive maintenance on your first car such as, oil changes, tune-ups, and tire rotations. Not doing these at the recommended times will shorten the life of your car, and may also void the extended warranty if something seriously goes wrong. In some states you'll have a few minor annual costs also such as, registration, tags, and car inspections.
Good planning up front will keep you out of financial trouble when buying your first car. Take a few minutes and write down all your current or future financial responsibilities such as rent, utilities, cellular phone, internet, and such. Next, add your car ownership costs and stick to your budget. You may not be able to get a super expensive car the first time around, but if you're smart, you'll be able to get the car of your dreams in the near future.
How to Buy Your First Car
There are pros and cons to being a first time car buyer. Some dealerships and manufacturers have special programs to assist you in the purchase of your first car. There may also be special rates and incentives available to you, if you know where to look and how to find them.
Being inexperienced can be very expensive for you. If you buy the wrong car or pay too much, you're not getting a second chance.
There is no such thing as a "Buyer's Remorse Return Law," once you sign on the dotted line, you're an owner. Even if the vehicle breaks in half when you drive it off the lot. My point is, this is not the time to "fake" your way through the car buying process, car salesman will see right through you and eat you alive.
Car Buying Tip - When buying a car, I'll always recommend you go no longer than a 48 month term and have at least a 20% down payment. This will save you lot of money in excessive interest charges and keep you out of a negative equity situation. If the vehicle you're considering doesn't fit within these guidelines, select a different vehicle.
1) Select Your First Car
Selecting your first car is not only fun and exciting, it can also a huge task. You'll want to get it right the first time because you're most likely going to be driving it for a few years.
What's important to you, safety, fuel mileage, 2 door, 4 door, truck, SUV? There's so many different makes and models available to you, it can be hard to choose. Don't rush the selection process, it's one of the most important steps.
If you're considering a pre-owned vehicle, read my section on how to buy a used car. It will guide you through all the steps of the used car buying process and help you negotiate and buy a safe and reliable vehicle at the best possible price. Click here for tips on how to buy a new car.
2) Know Your Credit History
Even though you've never financed a vehicle before, you should still review your credit reports and know your credit score before applying for a loan. You can make sure there hasn't been any mistakes reported to your bureaus, making it even harder for you to get approved for a car loan.
The key to paying the lowest interest rates in the future is establishing a rock solid credit foundation now. I highly recommend you review your credit reports and scores frequently. You can correct any errors and misrepresentations immediately and also keep yourself from becoming a victim of identity theft.
The problem with companies that give you access to your credit report for free is they do not provide you with the most important piece of your credit report, your credit score. Your score is what you want to know and is what lenders use to determine if they'll extend you credit for an auto loan. I recommend an online service such as FreeScore360.
Contrary to popular belief, checking your credit will NOT harm your scores. A good credit score is your golden key to aquiring competitive interest rates for credit card offers, insurance premiums, cars, mortgaes, and more. A strong score is worth money because it can save you from paying higher interest rates and ecess costs.
3) Get a Pre-Approved Car Loan
This is the most important area when buying your first car. The finance department of a dealership is where most of the fraud and deception can occur and can cause you thousands of dollars of excessive charges.
My advice is to use your down payment (the larger, the better) and attempt to get a pre-approved auto loan by yourself first. This may prove to be difficult, however when it's time to finance your next vehicle, having a paid auto loan on your credit reports in just your name carries a lot more weight than it you're on a loan with someone else.
Use a Cosigner
If you can't get a auto loan on your own, the next best thing is to do is get a cosigner. This is when you and another person are on the loan and you're both responsible to pay it back. When someone cosigns with you, you will both equally establish credit. It may not be as powerful as getting approved by yourself, but it will still help you tremendously when buying your next car.
If you absolutely have to use a cosigner, the only people I would advise you to cosign with is one of your parents. I've seen many people cosign for their friends and co-workers and it's never turned out good. Remember if you default on the loan your brand new credit history will be damaged and your parents will be left responsible for the debt.
Sneaky Car Salesman Can Be Very Tricky
Some car salesman look at first time car buyers as "FRESH MEAT." These salesmen will take uneducated buyers and manipulate them through the sales system. They know you're inexperienced and may try and talk you into a car you don't want, something you don't want to do, or worse yet, a vehicle you cannot afford. Don't let your first experience with buying a car at a dealership be a bad one.
When filling out a credit application, don't leave any blank spaces. Always fill in your time on job, time at residence, and your income amount. These three areas of the credit application are where an unethical dealer can manipulate the system and get you into financial trouble. Visit my dealer scams section to read more car dealer tricks of the trade.
The same goes for signing paperwork. If you have a cosigner, make sure you're both at the dealership at the same time when signing the same paperwork and also signing in the right spots. If something doesn't seem right or you don't understand something, have it explained to you until you do. No question is a stupid question when it comes to buying a car.
If you end up paying a higher interest rate, don't worry, just wait about 6 months or so and apply for an auto refinance loan. Online companies such as myAutoloan.com and InstantCarLoan specialize in paying off high interest car loans and lowering your payments. It doesn't cost anything to apply and it may save you a bunch of money in interest charges.
To learn more on how dealers make money in finance, credit reports, refinancing, establishing credit history and how to get a pre-approved car loan, read my section about dealer finance here.
4) Compare Insurance Rates Before Buying a Car
It's illegal to drive a vehicle without insurance coverage. If you get pulled over without it, you will pay a hefty fine and could possibly have your car impounded in some areas of the country.
Auto insurance is one of the most overlooked areas when buying a vehicle even for people who have bought several vehicles over their lifetime. It can be a real surprise finding out after buying your first car, your monthly insurance payment is actually more than your car payment.
Car insurance can be very expensive for young drivers, especially for teenagers. One factor is the age of the driver. The younger you are, the less experience you have behind the wheel.
The rate you'll pay also depends on how new the vehicle is, the area you live, the average miles you drive annually and the type of vehicle you purchase. The more sporty the car, the higher the premium, the same rings true with engine size also. A policy on a new vehicle for a young driver is outrageously high.
Shop and compare coverage by getting a few free quotes online before making a decision. Once you find a quote on the vehicle you're considering, add the cost to your monthly ownership budget.
If you find insurance coverage too high, there is a cheaper route. You can ask your parents to add you to their policy. Tell them you'll pay the difference and whatever you do drive carefully.
To read more about secret insurance discounts, insurance myths and where to find free online rate quotes, visit my detailed guide on auto insurance here.
5) Protect Your First Car With an Extended Warranty
I have always recommended purchasing an auto warranty to protect your investment, especially if you're purchasing a used car. As a young driver you may not be in a financial position to pay a $3200 repair bill to replace an engine. If you're vehicle ever breaks down from a covered repair item, the warranty company will pay for the repair and you won't have to come out of pocket.
Dealers have huge mark-ups on the extended warranties they sell. The good news is, you don't have to buy a warranty from the dealer you buy the car from. You have several alternatives, but you must be careful because some of the auto warranties out there are not worth the paper their written on.
As always, my advice is to get a couple free quotes from third party warranty providers. The companies I recommend are CARCHEX and Endurance Vehicle Protection. These companies provide the same level of protection or greater, at a much cheaper price than you'll find a dealership offers you. Take the quotes you receive from these companies with you to the dealer for leverage to negotiate an even better price on the warranty the dealer offers you.
Extended warranties are an optional product, it's ultimately your decision if you want to purchase one. Never let anyone tell you that you must buy a warranty before you'll be approved for an auto loan, this is a lie and illegal. If a dealer attempts this scam on you, kindly thank them for their time and leave. Click here to read more about extended auto warranties and how they work.
One of the biggest mistakes people make is not doing their homework before buying a new or used car. These people blindly walk into a dealership, not knowing what they're doing and end up becoming a victim of the dealership.
I know, the advice on this page may make buying your first car seem like a nightmare. But it's not really as scary as it sounds. Take it one step at a time and follow the tips above and the other advice on this site. By following the above tips and other advice on this site, you can buy your first car with confidence knowing you got a great deal. Good luck!
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Recommended Sites for Online New Car Shopping
Edmunds and TrueCar are the quickest way to compare new car prices in your local area. These online sites will provide you with free, no-obligation price quotes and the discounts you receive will give you confidence on your next new car purchase. Walk away from the dealership knowing you received a good deal, not hoping you did.
Share Your Tips - Do you have any tips or advice for first time car buyers that will help others save money, please tell us about it in the comments below, so we can share it with everyone.