Once you have reached financial independence, buying a car may become one of the most important items on your to-do list. Although the prospect of owning your first vehicle is exciting, it’s a major financial milestone that requires some serious planning and long-term commitment. Here are a couple of questions to ask yourself when shopping for your first car:
New or used?
There are pros and cons to each. If you are fresh out of college and have just started your career, you are probably still figuring out your finances. Generally, used cars cost less than new cars — and not simply because old model years have gone out of style. It is estimated that a new car depreciates by about 20 percent in its first year. A used car, however, has already depreciated by the time you buy it, so you can take advantage of a lower price tag. To get a better sense of which type of car fits within your budget, you can compare new and used car prices online.
Make sure you also consider maintenance and repairs when deciding between new and used. Many dealers will offer some repairs and maintenance coverage if the car is under warranty, regardless of whether a car is new or used. But if you’re buying a car from a private owner instead of a dealership, you may not be clear on where you stand with the warranty. Since used cars are older, they may require more maintenance, which can cost you a considerable amount of money. Regardless of whether you buy new or used, you should understand the terms of the warranty so you can make the most of your purchase.
When buying a car, you also need to consider insurance. In some cases, it may cost more to insure a new car. But insuring a used car can be expensive if it doesn’t have certain modern safety features. Be sure to check with your insurance agent before you make your decision.
How should I pay for my car?
If you’re buying a car, it's almost always best to pay cash. You can save a lot on interest and other finance charges associated with auto loans when you purchase your vehicle outright. But, realistically speaking, you may need to get a loan — especially if you need a car immediately and won’t have sufficient time to save up.
While you may not have enough in your savings account to finance the entire purchase of a car, consider putting down a sizeable down payment. This will reduce your monthly car loan payments, which can help you stay within your monthly budget.
How should I get a loan?
One of the first things you can do is get pre-approved for a car loan. That way, you know what price range to look in. You can bring the amount that you are pre-approved for to dealerships to help you get the best offer possible. Or, if you shop around for loans, a dealership may be able to offer you a lower interest rate once you present a competitor’s number. Remember, a car loan is a major financial commitment, so be sure to comparison shop to get the most favorable rates and terms anytime you are buying a car.