Your First Car
Nothing spells freedom like having your own car, right? If you’re thinking about buying a car, take some time to think through your needs and get educated on what’s involved in buying a car so you’re not the one being taken for a ride.
It can be intoxicating to walk onto a new car lot – all that horsepower, new car smell, leather interiors and serious wattage stereo systems. But shopping for a car without thinking about what you need and much you can really afford can have you driving off the lot with something that’s fun now but can create serious financial stress down the road. Following are some things to consider before going to the showroom:
- Do you really need it? It may sound like a silly question, but just because you want a car, you may be able to use your money for other things instead. For example, if you live in a big city where you can walk or get easy access to public transportation to many places, you might be able to put off buying a car for a while. Even if you live in suburbia, you might be able to carpool to work and use other modes of transportation to free up the cost of a monthly car payment. For road trips you could consider renting a car. Remember to get insurance and remember that most rental car companies require a driver to be 25. Just because it can seem exciting to own your own car doesn’t mean it’s actually something you need right now. Think about it.
What will you use the car for? If you’re making short trips through suburbia to an office building downtown you’ll need something different than if your job has you trekking through back-country logging roads. How far do you think you’ll typically need to drive and where? How many people do you think you’ll need to accommodate on a regular basis? What else besides people will you need to regularly transport (i.e. luggage, heavy equipment, groceries, etc.)?
- What type of features do you need? Note the word “need.” This isn’t the time to think about all the beautiful bells and whistles the manufacturers want to sell you. This is about the features that you really, actually need for driving. For example, if you live in a climate that gets pretty hot, air conditioning might be a non-negotiable for you. And if you never learned to drive a stick shift (manual), you might need to only look for cars with an automatic transmission.
- How much can you afford? This is where the rubber really hits the road (pun intended)! Car dealership advertising can make it seem like you can drive off the lot with a fully-loaded luxury car for less than $100 a month, but that’s where the fine print (the really, really fine print) comes into play. Instead of letting the sticker prices steer you, take your cue from your budget first. If you’ve never created a budget, this is the time to start. Click here for a simple, easy-to-understand (and use!) budget form and tips. If you’re going to finance your car purchase (meaning you need to borrow money instead of paying cash for it), your car costs are going to be more than just your monthly payment. Try to budget how much you will need to pay for:
- Monthly car payment
- Car insurance
- Property tax (if you live in a state that charges personal property tax on cars)
- What kind of car are you considering and what should you pay for it? FINALLY – after working through all of the above questions – finally, now, you should begin doing some sleuthing into what kind of car you want/can afford that meets your criteria. Find out the resale value of a used car, or what a dealer paid for a new car that you are considering. By knowing the “blue book” value of a used car (so named because one of the original pricing services, Kelley Blue Book, had a book cover that was blue) you are more likely to get a decent price on a resale car. If you are looking at new cars, it’s going to be helpful to know what the dealer paid for the car (dealer price) or even better, the wholesale price or “true price” of the car (which includes any dealer incentives for the car). Dealers add freight, tax, license, and then profit on top to make money off the car’s sale and stay in business.
Once you know how much the dealer paid you will need to at least add tax, license and insurance to come up with your bottom possible price. Having these numbers in hand puts you in a better bargaining position, which is always a good thing.
Go online to sites like Consumer Reports, Edmunds.com, Motor Trend, PriceQuotes.com, CarWorks.com, Imotors.com, Kelley Blue Book.com and NADAGuides.com where you can compare car makes and models, prices, vehicle performance, service and safety ratings.
- What possible deals are available? Seems like every car dealership is having a HUGE, BLOW-OUT sale every week. How do you know if it’s any good? Bypass the hype and find out if a car’s manufacturer is offering rebates which can lower your car cost. You can get information on manufacturer rebates and incentive programs online at Autopedia.com and Edmunds.com.
- Where could you get financing? Unless you’re paying cash for a car you will need to borrow money to finance the purchase. If you’re buying a car (new or used) from a dealer, the dealership will probably offer you financing. Dealership financing is usually more expensive (meaning they will charge a higher interest rate and fees for borrowing the money) than what you can find on your own--although there may be times when auto manufacturers have special financing incentives that are lower than other loan institutions. Check with your bank or credit union to find out what financing rates they offer before going to look for a car.