Buying your first car can be intimidating. That’s a lot of money to be throwing around, especially if you’re a student or you’ve just graduated. You might be worried about buying the wrong car, making a mistake on the loan or overextending yourself financially. But if you follow a few smart tips, you really can relax … in the front seat of your new ride, hand on the wheel.
How Much To Spend
Before you can go shopping for a new car, you’ve got to know how much you can spend. It can get a little complicated trying to comparison shop. Should you go by the purchase price of the car, the MSRP, the monthly payment? Plus, all of those factors are changeable, depending on discounts, promotions and loan rates.
A good place to start is by looking at your budget. It’s a good idea to keep your car payment within a certain range of your overall expenses — ideally, no more than 10% of your gross income. So if you make $2800 a month before taxes, you want your car payment less than $280. This ensures that you’ll have enough room left in your budget for housing expenses, bills, savings and a little fun, too.
Next, make sure you know your credit score. Your credit score is going to directly affect the kind of terms you can get for your auto loan. The higher your score, the better your terms. It’s worth it to pay your bills on time and keep your credit score as high as possible because you’ll be saving money every month on interest with a lower interest rate.
You’ll keep your monthly payment lower by putting some money down on your car, too; 20% is a great amount to put down.
Finally, once you know your target numbers, you can play around with some online calculators. You’ll see that interest rates vary by credit score, and that they’re different for new cars versus used ones, too. By adjusting your expected interest rate, purchase price and desired monthly payment, you should be able to dial in a good estimate of what you can truly afford.
Buying vs. Leasing
But all this information is about buying a car with financing. What about leasing? You’ve probably seen ads for lease deals that include low or no down payment and low monthly payments. It sounds like a great way to get a new car without paying a lot. And it is … technically. But leasing a car is really just renting a car over a long timeframe. You don’t get to keep the car at the end of the agreement. And just like paying rent to a landlord, your payments aren’t enriching you or getting you closer to holding an asset, it’s just going into someone else’s pocket.
On the other hand, when you finance a car, you are working toward owning that car at the end of the agreement. When you have paid off your car after four (or five or six) years, it’s your asset to do with what you want. You could drive it for another ten years without car payments. Or you could take excellent care of it and sell it, recouping your costs. Both buying and leasing have pros and cons which you should consider carefully.
The Shopping Process
Armed with numbers, you’re ready to begin the shopping process. This is a great time to figure out what car is going to work for you. Do you need a lot of room for passengers? Great gas mileage for a long commute? Safety features, high tech, extra legroom? There are a number of features to consider as you whittle down your selections, but you’re in the driver’s seat for this decision-making. It’s easy to research models online and compare the features that are most important to you.
Once you get it down to a few options that are in your price range, you can do a few test drives to see which handle best and feel right for you. Aim for a small handful of cars to test. Any more than, say, 5, and you’ll have a hard time telling them apart, and the test-driving experiences are going to start to run together.
This is a great time to recommend you seriously consider buying used. Buying a car that’s about two years old will save you a great deal on the depreciation that happens as soon as you drive off the lot, and on the insurance, too. However, a recent model is still new enough to have the latest and greatest technology and features.
Buying your first car might be an intimidating proposition. However, by taking the time to implement the steps above, do your research and prepare for the purchase, you’ll be ready to make a smart decision on your next ride. Don’t forget to keep paying your loan payments on time to ensure your credit score stays as high as possible, so that when you’re ready for your next car, you get the best deal possible.