Tips for Buying Your First Car

Decide if pricey options are important to you before you set foot in a dealership.

Decide if pricey options are important to you before you set foot in a dealership.

Once you've determined you actually need a car, a good next step is to determine a price range. This will help you decide whether to shop for a new or used car, and which cars are within your budget.

When determining what you can afford, keep in mind that the car itself won't be the only thing you'll have to pay for — gas, insurance and perhaps parking will also add to the monthly cost. You may want to consider maintenance costs as well.

Once you pick a price, stick to it and don't get distracted.

Decide What Kind of Car You Want

After you have decided how much you are able to pay for your new car, you can start figuring out what style of car to buy. A few things to consider:

  • Size: Unless you are going to transport a lot of people often or use the car to haul furniture, a smaller car might be a wiser option. It saves on money and gas, and is easier to park.
  • Gas mileage: If you plan on taking many long trips home or you live in a city where gas prices are astronomical, gas mileage is a huge factor to keep in mind. Having the coolest car on campus isn't going to be helpful if it guzzles so much gas you won't be able to afford the drive home for Thanksgiving.
  • Safety: One advantage of buying a newer car is that they typically have more safety features like airbags, backup cameras and blind spot warning systems. Electronic stability systems are required by law on all cars as of 2012. Studies from the Governors Highway Safety Association show that young drivers are most at risk for fatal crashes, so taking some precautions may be worth the investment.
Choose Which Accessories Are Important

Figure out what are important must-have features and what are simply luxuries. Do you really need a heated steering wheel and leather seats? Also, pay attention to everything that is included in the various packages. If you just want the bigger wheels, for example, you may need to buy a complete package with many more accessories or a different trim level for even more money just to get that one feature. You might just be better off without it.

The Finance and Insurance Room

If you don't pay the total amount for the car all at once, you'll need to set up a monthly payment plan. To set up this plan, you'll spend time in the finance and insurance room, going over these details.

Car salespeople often use a four-square sheet with sections for the amounts of a trade-in, total price of the car, down payment and monthly payment to try to get the best deal — for themselves.

They will start by writing down high numbers and work down from there to make you think they are giving you a good deal. If they insist on using this four-square tactic, there are steps you can take to be as prepared as possible for the transaction.

Since you are buying your first car, it's unlikely you have another one to trade in. But if you do, find out beforehand how much it is worth with pricing guides, used-car-pricing websites or an appraisal. If the salesperson gives an amount less than you expected, he or she may increase it to make you happy but that salesperson also will increase the price of the new car, leaving the same profit. Pay attention to the numbers.

Go to your bank or credit union as well as multiple dealerships to see what interest rates they offer. Since you are going to be paying interest over many months, it's worth it to find the best annual percentage rate instead of taking what is most convenient. One percentage point could add hundreds or thousands of dollars to the lifetime payment. If a dealer is advertising an amazing rate, make sure you actually qualify for it; it may just be for people with the best credit history.

If you can get all of your financing prearranged, this is a huge advantage because you can focus negotiations on the total purchase price of the car with taxes and fees, and the dealer has an incentive to beat the financing you got from your bank or credit union.

As part of your financing, you will have to consider your monthly payments. Remember that when you pay bigger monthly installments over a shorter period of time you pay less interest and more principal on your debt. The longer you stretch out the payments, the more you will end up paying in interest, perhaps much more than the car is worth. Use the auto loan calculator to calculate what your payments will look like — and whether they'll fit your budget.

Finally, don't be afraid to walk out if the salesperson is being unreasonable. Nothing you have agreed upon so far is binding, so you are under no obligation to continue negotiations. Check out multiple dealers to find someone you can work with, or come back another day when they are ready to take you seriously.

Having a Cosigner

If you are young and it is your first time buying a car, chances are you don't have an established credit history. This will inhibit your chances of getting a loan or a good interest rate for your car payment, so having someone else as a cosigner will help secure a loan.

A cosigner signs the contract with you and promises to pay off any debt if you are unable. They must demonstrate their financial stability and ability to make these payments if needed. You are still responsible for the loan, but you will have a backup in case something happens.

In some cases a cosigner is required unless you meet a minimum monthly income requirement, have established credit and put down a sizable down payment.

© 8/26/13