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First-Time Car-Buyer Guide

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The first time you buy a car can seem daunting. Cars are typically expensive, and auto dealers don’t always have a reputation for making the process easier. A first-time car buyer might not know where to start. But don’t worry. Here are four steps — each with car-buying tips — to fuel your first car-buying experience.

  1. Know your budget
  2. Use industry guides
  3. Get financing before going to the dealer
  4. Talk about the price, not the payment

1. Know your budget

Perhaps the least exciting — but most important — aspect of car buying is setting a budget. Don’t buy more car than you can afford. While getting your first car as a status symbol can be tempting, know that most vehicles aren’t investments. You’re not going to sell the car for more than what you paid since vehicles have limited life spans.

Set a budget, use an affordability calculator and consider all the costs associated with owning a car (such as tax, fees, gas and insurance) so you have a realistic understanding of what your total transportation costs will be.

Budget tips for first-time car buyers

  • Avoid leasing: While getting a brand-new car with low monthly payments can sound like a dream, you might be in for a rude awakening when you realize you paid for half the car’s value and don’t own half the car.
  • Buy used: New cars can lose 40% to 60% of their value within the first three years. By buying a used car, you’re missing out on the largest chunk of depreciation.
  • Have a down payment: If you’re financing, it’s a great idea to have a down payment of about 20%. If you can’t do that, even a small down payment could help you qualify for a loan.
  • Plan an independent inspection: It may be a smart idea to have an independent mechanic inspect any used vehicle you plan to buy. The inspection may cost around $100, but it could save you from buying a lemon car.

2. Use industry guides

Online industry guides such as NADAguides from the National Automobile Dealers Association, Edmunds and Kelley Blue Book are available for free. These guides are what car dealers and auto lenders use to determine what a car is worth.

Don’t pay more for a car than what the guide says it’s worth. You can also use them to pick your best first car.

Industry guide tips for first-time car buyers

  • NADAguides pricing: You could use this conservative pricing guide to negotiate down your car’s price.
  • Edmunds True Cost to Own: Edmunds provides a five-year cost estimate of car ownership, looking at repairs, maintenance, fuel costs and more.
  • Kelley Blue Book YouTube channel: As of the publishing date, KBB has more than 1,700 videos of car review and comparisons available for free.

Here’s a list of the best first cars based on data from some of the guides.

3. Get financing before going to the dealer

As the middleman, dealers submit your car financing application to their lender network and then show you loan offers. But they don’t have to show you everything.

The dealer often presents the financing option that will make them the most money — not the option that’s best for you. An auto loan preapproval can be one of the best way to counter that.

Financing tips for first-time car buyers

  • Apply to a few lenders: As a first-time car buyer, the APR you qualify for might be high, so it’s important to shop around. Potential lenders include banks, credit unions or online financial institutions. It doesn’t hurt your credit to apply to multiple lenders any more than it does to apply to one as long as you submit your applications within a 14-day window.
  • Ask the dealer to beat your preapproval rate: With its lender network, a dealer may be able to find a better rate than you could.
  • Get a cosigner: A cosigner can make a huge difference in your auto loan rate. A close friend or family member may be willing to cosign for you. How you pay back your loan will affect you and your cosigner’s credit scores. For example, if you’re late on a payment, both you and your cosigner’s scores could decrease.
  • Understand the federal Truth-in-Lending Act disclosures: Make sure you absolutely understand the part of the financing contract that is labeled the federal Truth-in-Lending disclosure. It will state your:
    • Monthly payment
    • First payment due date
    • Loan term
    • Total borrowing amount
    • APR
    • Down payment (if any)
    • Total amount you’ll pay for both the car and the car loan in dollars

You could fill out an online form on LendingTree and — depending on your creditworthiness — get up to five auto loan offers from lenders.

Ask about first-time car-buyer programs

Some manufacturer finance companies have first-time car-buyer programs or limited-credit programs. When you ask a dealer to beat your preapproval rate, see if the automaker offers one. Each lender that does may have its own program requirements.

A first-time-buyer program or limited-credit program may offer benefits to first-time buyers by making it possible for them to finance without having a cosigner despite a lack of credit history. Take Toyota Financial Services program, for example.

Toyota Financial Services Financing for Limited Credit (iFi)
To qualify, you must:

  • Have a FICO Score of 610 or higher
  • Have no foreclosures, repossessions, collections, charge-offs or 90-day overdue accounts on your credit history
  • Provide verifiable proof of a full-time job for at least 6 months
  • Have enough income to cover ordinary living expenses and car payments
  • Provide a minimum down payment of 10% of whichever is lower: the car’s selling price or manufacturer’s suggested retail price (MSRP)

4. Talk about the price, not the payment

When you do negotiate, talk about the total price, not the payment. It’s to your advantage to talk about the price after the test-drive so that you can bring up any concerns you may have and potentially use them in the negotiation.

A lot of things can be packed into a car loan while keeping a monthly payment low. Dealers could include a $2,000 extended warranty, $1,500 appearance package and more and still meet your monthly payment expectations by making your loan longer.

Negotiate on the price of the car and each thing you want, and then the auto loan APR, which represents the price of the loan as an annual percentage. Don’t focus on the overall payment.

Pricing tips for first-time car buyers

  • Use your phone to research: You could still use the internet when you’re at a dealership to look up car pricing on an industry guide or another dealer’s website.
  • Get an auto payment calculator: You could have your phone browser open to an online car payment calculator so that as you talk about price, you can plug it in and know what your payment should be.
  • Go with another person: Car buying can be stressful, so go with a friend or family member who has your back.

There is a fine line between terrifying and exciting, and the experience of getting your first car could fall on either side. But these first-time car-buyer tips should help you drive away with a sweet ride that you can pay for without a worry. If you have further questions about auto financing, check out our car financing deals page.


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