GRADS: Tips for Buying Your First Car

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New Car Ourchase

It’s graduation season, and a lot of former students are looking for their first car. When the time comes for you to buy your first car, here are tips that will help you put the right car in your driveway.

Buying vs. Leasing

Most of the ads you’ll see trumpeting a low payment are for leases, not purchases. You’ll need to carefully evaluate which option makes the most sense for you. The obvious advantage of a lease is the lower monthly payment versus buying, but the downside is the mileage limitation. If you’re limited to 15,000 miles per year, you’ll end up facing a heavy penalty at the end of the lease if you go over.

“Be careful,” says CARiD’s Product Training Director Richard Reina. “Leasing’s lower payments make it tempting to get that Lexus instead of a Toyota. Look at the bigger picture before signing,” he says.

With leasing, you always have a monthly payment,” he says. “When you lease, you build up no equity, and at the end of the lease, you either buy your lease car or start a new lease.”

Purchasing a car means that you own it at the end of the loan term, and when you can, you can add money to your monthly payment to pay the car off more quickly. “With purchasing, once the car is paid off, it’s yours, and you no longer have monthly payments,” Richard says. “If you maintain it, you should be able to get at least seven to eight years and 100k-plus miles from a modern car.”

Figure Out Your Monthly Payment

This is essential and it’s not as easy as you might think. You must figure out how much you can realistically afford to pay for your car each month while still putting food on the table. This is just one part of the budgeting puzzle that you need to carefully put together when you’re buying a new car.

Be conservative with your numbers, especially if you’re buying your first car right out of college. There’s a good chance your income isn’t stable and you’ll have lots of unexpected expenses.

When you’re figuring out how much of a monthly payment you can afford, don’t come up with a number based on the job you want. Figure out that number based on the job you have right this minute. You may think you’ll get a raise or a new job in the next few months, but what if that doesn’t happen? Worse, what if you lose the job you have right now?

Budget for a monthly payment you can easily afford and you won’t find yourself so quickly in trouble if your finances suddenly take a turn for the worse. You don’t want to put yourself in a situation where you have to default on your first car loan.

Looking for a new or used car? Check out BestRide’s listing search here.

Determine Your Down Payment

The more of a down payment you have, the lower you can bring that monthly payment. It might seem like a good idea to put down as much as possible, but be careful with spending all the cash you have saved just to get a fancy car.

Yes, it makes sense to finance as little as possible so you’re not paying as much interest over the term of your loan, but you shouldn’t spend all your cash on your car. Make sure you leave a cushion of money in the bank for the unplanned expenses.

There may be unexpected repair bills for your new car and there’s still the rest of your life to consider. Medical bills and day-to-day expenses can add up quickly, so having money in the bank to cover those expenses is a wise idea.

Car Loan.

Arrange Financing

Unless you saved a lot of money from those part time jobs you had in college and high school, you’re going to need to take out a loan to buy a new car. You can walk into the dealership and secure a loan during the purchase, but you’ll do better if you walk in with a preapproved loan.

Start by knowing your credit score. The law entitles you to a free credit report from each of the three major credit bureaus each year. You can do this online at AnnualCreditReport, which is the government’s officially authorized website.

It’s important to know your credit score because the better your credit, the better the interest rate on your loan. Don’t think you’re out of luck if you have bad credit. You can probably still get a car loan, you’ll just have a higher interest rate, which means you’ll pay more money over the course of your loan.

Shop around to see what kind of rates you can get from different lenders. CARiD.com’s Richard Reina suggests searching multiple sources for the best rate:

  • The manufacturer (many car makers underwrite car loans to encourage sales)
  • The dealer (usually higher interest rates, but it’s worth asking)
  • Your local bank/credit union (typically, but not always, the best choice)
  • The internet (if you’re a recent college grad with no credit history but a good job, you may find an online bank willing to give you a loan)

Here’s where that freshly printed college degree is going to come in handy: “Do the math,” says Richard. “A five-year loan may have lower payments, but might have a higher interest rate. The three-year loan will cost more per month, but can be at a lower interest rate.”

Don’t be discouraged if you don’t get a loan at the first bank you approach. If you have bad credit or simply don’t have a credit history, then it may take a couple of tries to find a lender willing to work with you.

Another option could be having a co-signer, like a parent or relative with good credit history. “This is one way to get a loan without a credit history,” says Richard, “and it may be the only way for some.” But it isn’t without pitfalls. “The downside is if you default,” he says. “Let’s say you lose your job; The co-signer becomes responsible for the loan.”

Looking for a new or used car? Check out BestRide’s listing search here.

Evaluate Your Needs

You might want a luxury car with leather seats, power everything, and a high-end stereo, but that might not be realistic. Take a look at what you need and not just what you want.

If you have a long commute, then a car with good fuel efficiency is worth investigating. Hybrids will definitely save you on gas, but they do cost more than their gasoline-powered counterparts so be very careful that you’re making a wise choice.

Smaller cars are also a great idea for first-time buyers. Unless you plan on having friends in the car all the time or already have kids of your own to tote around, you don’t need a huge car.

The purchase price for these cars is less and they usually get better gas mileage so you’ll save money over the long run. These cars are also easier if you live in an urban environment where parking spaces can be tight and roads are narrow.

Consider your overall lifestyle, too. Those who long for outdoor adventure will benefit from something with off-road capability making those vehicles worth the cost for the right buyer.

Car.

Take a Test Drive

It may look perfect and you may even know someone that owns one and says it’s great, but take your potential new car for a test drive anyway. You’ll never know if it’s the right car until you get behind the wheel.

Drive it in the situations you’ll be driving each day whether that’s highways or congested city streets. Make sure you can get the seat positioned so you’re comfortable and can easily see the road.

Play around with the infotainment system. Make sure it’s easy to use and not frustrating. Check that the controls are all within reach, too, so you’re not awkwardly stretching to reach frequently adjusted things like air conditioning and heat.

Sit in the back seat and make sure there’s enough room back there for passengers. If you’re buying something with three rows, then sit everywhere and check that getting in and out of those rows is easy. Also, fold the seats down and back again to make sure it’s a process you can manage.

Don’t Forget Insurance and State Fees

Car insurance doesn’t come cheap and how much you pay depends on not just the car you buy, but where you live and how much you typically drive each year. Call around and get some quotes before you buy so you have an idea of how much you’ll need to pay to keep your car insured.

The government also takes their share with annual registration fees. These can be particularly costly for new cars if your state bases those fees on the value of your car. Make a phone call to find out how much your city and state will charge to keep your car legally on the road.

Budget for Maintenance

It doesn’t matter if you buy your car new, there will still be maintenance costs. Keeping your car in good condition is a key part of ensuring you’ll still be driving it once it’s paid off.

Make sure you have money set aside to cover things like burned out lights, wiper blades, and new tires. Scheduled maintenance is covered for a limited time for some new cars, but be ready for the normal wear and tear expenses that happen even with new cars.

Looking for a new or used car? Check out BestRide’s listing search here.

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Nicole Wakelin

Nicole Wakelin