Did you know that car prices are over 17% higher than they were a year ago? With prices creeping up, it’s easy to feel overwhelmed if you’re in the market for a new set of wheels. But if you know what to expect and get yourself financially fit, you’ll be ready to score a good deal.
Stick around to learn about 13 important tips for a first-time car buyer!
1. Figure Out a Budget
While it might be fun to buy the flashiest car on the lot, can you afford it? You can save a lot of time when buying a car if you start by establishing a budget. The easiest way to do this is by reviewing your bank and credit card statements.
Create a document where you list ongoing monthly expenses and rough estimates for credit card payments. Then look at your monthly income. Check to see if you are breaking even each month, or managing to save money.
Then determine how much cushion you feel comfortable having. Many financial advisors suggest socking away around 10% or more of your monthly income. Figure out what kind of monthly car payment you could handle, and look for ways to pare down other monthly costs.
2. Weigh a New Car vs. a Used Car
Another consideration is whether you want to invest in a new car or one that’s amassed some miles. With a new car, you won’t need to worry that a previous owner drove it roughly. Likewise, you won’t have to worry that the car has been in an accident.
Used cars can carry more risks in that regard. You probably won’t have a warranty that’s still in play, and you might need to face some steep maintenance costs. But a used car also can come with significant savings.
A car’s value can go down by around 20% after a year. Wait 5 years, and the car’s price might be half of what it originally was!
3. Know What Type of Car You Want
Or do you want a van to transport the kids? Or are you thinking of a fuel-efficient sedan to tackle a grinding commute? Be clear on the type of car you want before surveying the options.
Weigh factors such as the primary purpose of the vehicle. If you own a boat or like to go camping, a truck with good towing power might make the most sense.
You might want a greener car, in which case an electric car is a good choice. You’ll need to put down more money upfront, but you’ll see savings when you’re not heading to the gas pump all the time.
4. Visit Dealerships and Look Online
Don’t visit one dealership and call it good. You’ll increase the chances of landing a good deal if you shop around. And this can include both traditional dealerships and online platforms.
When you go to one dealership, ask about special promotions and the price of a model you’re considering. Ask the same set of questions at another dealership.
Maybe one dealership offers a better price tag than the one down the road. You may be able to leverage that offer to get a better one at the dealership down the road. If they’re looking to shed inventory at the end of the year, they could lower their price.
5. Go on a Test Drive
Even if you think you know what you want, it’s always best to go on a test drive. You might be surprised by things like excessive road noise or a bumpy ride. You may want to see if an SUV offers nimble enough handling or if a van has enough acceleration.
Ride on city streets and the interstate for a range of road conditions. If you’re testing a used car, listen for unusual noises that could indicate underlying problems. For instance, rumbles or rattles could suggest engine problems or an exhaust leak.
6. Improve Your Credit Score First
Have you been late on some credit card payments? Or are you carrying a lot of student loan debt? Factors such as these can hurt your credit score.
And when lenders are looking at a car loan application from you, these factors are red flags. Aim to commit to timely payments and other better financial choices in the months leading up to a car purchase. You’ll increase your credit score as well as the chances of getting loan approval.
7. Get Pre-Approved for a Loan
Unless you’ve got enough cash to pay for everything, you’ll need to explore financing options. When you head to a dealership armed with a loan pre-approval, you’ll show them that you’re serious about making a purchase.
With a pre-approval, the lender will have checked your credit report and offered a loan amount. This amount will be helpful for a dealership to understand your budgetary limits. And don’t worry — getting a pre-approval will not hurt your credit score.
8. Ask About Warranties
For a new car, you should expect to get a warranty. The warranty length will vary by brand, but it tends to be around 3 years.
The warranty will cover problems related to the car’s brakes, engine, or transmission. Ideally, a new car means you won’t have these issues! But if you do encounter faulty brakes, the warranty will prevent you from facing a costly repair.
And if you opt for a used car, consider going with one that still has a year or two left of its warranty. Since you won’t know much about how the previous owner treated the car, even a year of warranty can be a safety net.
9. Determine the Vehicle History
When buying a car, it’s critical to know as much as you can about the vehicle’s history. You want to choose a vehicle that has received regular preventative maintenance and has not been in accidents.
Once you can access a car’s vehicle identification number, or VIN, you can search its history online. Then you can check up on the car’s salvage and insurance info.
10. Seek Out an Inspection
Make sure to get a pre-purchase inspection if you’re getting a used car. This is another safeguard to ensure you’re not buying a lemon. You might need to spend $100 or so, but it’s worth it.
A qualified mechanic can check the frame, belts, and hoses. They also can look at your suspension, brakes, and other critical components. They’ll be able to assess their status and let you know if repairs look imminent.
11. Get Car Insurance
You’ll need to have car insurance in place before you buy a car. Leaving the dealership in an uninsured car is illegal!
Shop around to secure quotes from different agencies. Once you’ve decided on a particular car, you’ll need to disclose the car’s VIN to the insurance agency. You’ll need to prove to the car dealer that you have secured insurance, as well.
If you are already part of an insurance plan, you’ll usually have up to 30 days to add the car before facing a penalty. It’s always wise to check this with your insurance agency, however.
12. Learn to Negotiate
Wondering how to buy a car? You’ll need to brush up on the art of negotiation. And do your homework before talking with a car dealer.
If you express confusion about aspects of the buying process, such as loan approval, you’ll make yourself vulnerable. Car salespeople might think you’re an easy target. And that can result in a poor offer.
If you have a vehicle you’d like to use for a trade-in, you’ll need to know its value, too. Otherwise, the dealer might give you a bad offer and you won’t have a point to negotiate.
13. Discuss the Payment Plan
Finally, don’t sign anything until you know the terms of the payment plan. How much you pay each month will depend in part on your down payment. A down payment of 20% is fairly common for a new car purchase, though that may be lower for a used car.
Be clear on the annual percentage rate (APR), as well as the length of the payment. For instance, you might have a 5% APR and need to pay back the loan over 5 years. If you can afford to pay on a shorter timeline, you’ll be able to save money by avoiding extra interest.
If you’re buying from a private seller, you might need to pay the entire cost in full. In some instances, the seller may want to be paid in cash or via a secure online payment platform.
Be a Knowledgeable First-Time Car Buyer
If you’re a prepared first-time car buyer, you’ll be able to land a manageable payment plan on a car that meets your needs. Size up the options — and your budget — before heading to car lots or looking online. Get your financing in order and take your time inspecting and test driving potential vehicles.
Make sure you have insurance and review the payment plan. Then sign on the dotted line to secure ownership of a new car. When you’re ready to get the car you want, contact us and we can help!