First of all, Congrats!
Buying a car is a big deal, and you should be very proud of yourself. No matter what age you are, it takes a lot of time to save enough money to purchase a vehicle. Buying a car takes time, money, and research to make the right decision.
In this article, I will review some basics of buying a car and provide some tips for first time car buyers. Although I have not bought my car yet (I live in a big city where I can walk everywhere) I just went through this process with my twin sister and thought it was important to share what I learned from it.
Figure out what your budget is
- Making sure that you have enough money to buy a car is one of the most important tips for first time car buyers. You don’t want to assume that you will be able to afford monthly car payments on top of all your other monthly payments if you don’t truly know your budget.
- If you need to review how much you should save per month, check out my article on the 50/30/20 rule for saving money here.
- A simple rule of thumb to set your car spending budget is to keep the car purchase at or below 20% of your annual salary. For example, if you are earning a salary of $50,000 per year, you can only spend a maximum of $10,000 on the car. (50,000 x 20%).If you want to see your monthly payment on a car loan quickly, use this quick calculator to figure out monthly costs. If you don’t need to take out a loan – the better.
Do your research
- Before buying a car, you should spend some time thinking about the type of car you need and do in-depth research on it. What features are a must? What features can you skip out on?
- Is there a significant difference in the price if you decide to go with a 2017 year versus 2020? How important is the year to you?
- Look up the car’s value based on make and model to make sure you know the general price range. Useful websites to check car values is Kelly Blue Book or Edmunds.
- Keep in mind that the person who comes prepared with the most information will always be the winner! It will only help you to be an expert on the car before buying it.
Look at the total price of the car (not the window or sticker price)
- The final purchase price will include all the taxes and fees of the car, which add up pretty fast.
- You want to know what the “out-the-door price” is – or the final price of the vehicle which includes:
- Vehicle and registration fees
- Destination fees
- Sales tax
- Documentation fees
Keep in mind additional costs
- There are many extra costs of buying a car – including maintenance and gas costs.
- In fact, the average new vehicle will cost nearly $8,500 annually to own and operate (based on 15,000 miles driven annually)
- AAA notes some of the most significant expenses below:
Depreciation – the decreasing value of a car over time (the wear and tear of a vehicle).
Repair costs – the costs to fix small or substantial parts of the car, like the engine. On average, a new car will cost a driver around $1,186 per year to maintain.
Fuel – Gas can get very expensive fast. On an average new vehicle, owners spend just over 10 cents per mile or about $1,500 per year.
Auto Insurance – Making sure you have auto insurance critical. The average cost of car insurance in the US can range from $800 to $2,000, depending on a variety of factors.
Negotiate the car price
- People who sell cars know that you are going to try to negotiate the price, and they are well prepared for your negotiation. Salespeople are salespeople – they want to sell you the car.
- This is why research is vital here. If you know the current market price of the vehicle, you will know if the deal is right or not. One of the best tips for first time car buyers is to always negotiate a price that is a bit higher than what the dealer will settle for. This way, the dealer can meet you in the middle. (Ex: if you want to only be paying $200 on monthly payments, try to start negotiating the price at $250. The dealer may come to a middle ground with you to offer somewhere around $215 per month).
To sum it up, the most valuable tips for first time car buyers include making sure you can afford a car within your budget, doing your research, looking at the car’s total price rather than the sticker price, factoring in additional annual costs, and lastly, knowing how to negotiate car prices!
Good luck buying a car, and congrats again.
Leave a comment below if you have any personal experience or other tips for first time car buyers!
Ashley is a finance graduate from the University of San Francisco and currently works at a financial technology startup in San Francisco that is focused on providing affordable and accessible 401(k) retirement plans to other startups and small businesses. Prior to working at a startup, she was an associate at a large private wealth management firm working with high-net-worth clients. She is born and raised in Orange County, CA, and loves spending time at the beach, in a pool, reading, and with her friends.
