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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 have a reputation for making the process short or simple. A first-time car buyer might not know where to start. But don’t worry. Here are five steps to guide the first-time car buyer.
- Determine your budget
- Decide whether to buy new, used or lease
- Get preapproved
- Pick a vehicle
1. Determine your budget
Use an auto loan calculator to play with numbers. This car affordability calculator helps determine your price range based on a monthly payment you have in mind. This payment calculator lets you see a payment based on a price. Keep in mind that no matter what, your payment needs to be affordable. You should leave some room in your monthly budget for gas and insurance costs. A great research tool is Edmunds’ True Cost to Own, which lets you look up a five-year cost estimate for almost any car.
2. Decide whether to buy new, used or lease
Once you know how much you can afford, the next step is deciding how to use your budget. We recommend purchasing a used car. Generally, new cars lose more than 20% of their value within their first year of use. And while leasing can be attractive, it typically requires a high credit score and is more expensive in the long run. Here’s more on leasing versus buying. Whatever you decide, the next step is to get preapproved for the type of first-time car buyer loan or lease you want.
3. Get preapproved
Banks, credit unions and online lenders all offer car loans. Look at the best auto loan rates and choose a couple of lenders to apply to. We always recommend that you get a preapproval or two and then ask the dealer to beat the lowest rate you got. As the middleman, dealers can inflate your auto loan APR if you don’t know what rate you deserve. Getting auto loan preapproval directly from a lender is the best way to counter this.
If you’re looking to lease, apply directly on the automaker’s website. 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. The U.S. credit bureaus give this two-week window so consumers can rate shop for loans without undue penalty.
Ask about first-time, car-buyer programs
Some automakers offer first-time, car-buyer programs and student programs. These are typically focused at helping first-timers purchase a new vehicle despite a lack of credit history. They have income requirements and may have limitations, such as only being applicable toward certain car models. If you’re interested in one, look at the manufacturer’s site and/or ask a dealer.
4. Pick a vehicle
Here’s the fun part. Whether online or in person, go shopping and find a vehicle that matches your needs and style. When narrowing down your search, here are some questions to ask yourself to ensure you find the right make and model for your needs.
Our biggest tip here is to take things one at a time.
Dealerships like to mix everything up and keep customers focused on the monthly payment because they can play with sliding scales and make a profit while keeping near your payment goal. Remember you’re in charge; the dealership wants to sell you the car.
Talk about these three things in order:
- The price, not the payment, of the car you want.
- The price of your trade-in, if you have one.
- The APR of your car loan.
Toward the end of the negotiation, the dealer will likely offer add-ons, such as an extended warranty. Dealerships make high profits off add-on products and, correspondingly, typically push hard to get customers to buy them. If you don’t want them, say no. If they push, politely ask them to take “no” for an answer and stop asking. Here’s what’s an add-on and what’s a fee.
Confidence boosters for first-time car buyers
- Go with another person: Car buying can be stressful, so go with a friend or family member who has your back.
- Say “can you beat this?”: Use your phone to look up the prices at another dealership, see the fair value pricing on an industry guide, get an online quote for your trade-in or have your preapproval offer saved. Show the dealer and ask them to make you a better offer.
- Double-check with an auto 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.