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Buying a Car for the First Time

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Starting your financial journey is like setting off on an exciting road trip. You’re gearing up for major life events, like buying a car for the first time. In planning for this event, remember that you are making decisions that should benefit you in the long run. Therefore, it’s important to understand the processes and the appropriate financial products to achieve your goal. This guide shows the critical steps of purchasing your first car.

Young women smiling holding car key in front of red car. Article Image
Yellow notepad with pen svg icon Lesson Notes:
  • Set a realistic budget for your car purchase
  • Research car options thoroughly before deciding
  • Explore various financing options available to you
  • Understand and negotiate all car purchase terms

Setting a budget for your first car

The first step in the process of buying a car is setting a budget for your car purchase. According to the latest data, the average transaction price for a new vehicle is $48,389 (Kelley Blue Book, 2024). Therefore, knowing how to buy your first car starts with understanding what you can afford. Your budget should account for more than just the car’s sticker price. Consider these key factors:

  • Down payment: A larger down payment reduces your monthly payments and the total interest paid over the life of the loan by reducing the total amount financed.
  • Monthly payments: Ensure that your monthly payments are affordable. In Q1 2024, the average monthly payments for a new lease and car loan were $595 and $735, respectively (Experian, 2024). Use our car affordability calculator to get an estimate based on different loan terms and interest rates.
  • Dealer fees and taxes: Go beyond the advertised price and ask for a quote that includes all fees, taxes, and costs.
  • Insurance: Car insurance is a mandatory expense. Get quotes from various providers to find a policy that fits your budget.
  • Maintenance costs: Even the most reliable cars need a little TLC now and then. Allocate a portion of your budget to cover regular maintenance and unexpected repairs.

Consider these factors to create a comprehensive budget so you can afford and maintain your new car without financial strain.

Researching your options

Now that you have a budget, it’s time for some fun — researching your options! The first decision is whether to buy a new or used car, which depends on your budget. Secondly, there are countless makes and models out there. Therefore, start by thinking about what you need.

Are you looking for fuel efficiency to save on gas? Maybe you need lots of cargo space or top-notch safety features. Regarding prices, look for local dealerships with deals and discounts and check online for a broader range of options. Additionally, read reviews and ratings to see how different models stack up.

Don’t just stop at the cars; research dealerships and financing options, too. Compare prices online and visit a few local dealerships to get a feel for the market. Financing is another key area to explore. Whether you go for a loan from a bank, a credit union, or dealer financing, knowing your options will help you get the best deal.

Financing your first car

After narrowing down your options, the next crucial step is financing your first car. Whether you’re looking at how to buy your first car with no credit or with established credit, it’s essential to explore various financing options before committing. Here are some to consider:

  • Auto loans: When you take out a car loan, you borrow a specific amount from a lender and agree to repay it over a set period, usually with interest. This option allows you to own the car outright once the loan is paid off. You can obtain car loans from banks, credit unions, or directly through the dealership. They typically require a good credit score, but some lenders offer first-time buyers with no credit history loans.
  • Leasing: You can drive a new car for a lower monthly payment if you lease it. However, you won’t own the vehicle at the end of the lease term. Make sure you understand the contract terms to see if they fit in your lifestyle.  
  • Special programs for first-time buyers: Some lenders offer programs specifically designed for first-time buyers. These programs might come with higher interest rates but can help you build credit.

Negotiating and finalizing the purchase

With your financing sorted, it’s time to negotiate and finalize the purchase. Here are some tips to ensure your efforts culminate in a successful transaction:

  • Research prices: Know the market value of the car you want. Websites like Kelley Blue Book provide useful pricing information.
  • Restrict your loan shopping to 14–45 days: The Consumer Financial Protection Bureau (2024) notes that “shopping within this time span generally means that any requests from lenders to check your credit will count as one credit inquiry.”
  • Be prepared to walk away: If the dealer doesn’t meet your price, be willing to leave. Be committed to getting a good deal.
  • Understand the paperwork: Carefully review all documents before signing. Ensure that the terms match what you agreed upon.

Negotiating the price and terms of your car purchase can save you money. Ensure you get the best deal possible and you’re fully aware of your financial commitments.

FAQs

What should I consider when buying my first car?

When buying a car for the first time, consider factors such as your budget, the car’s reliability, and financing options. Besides the total out-the-door price, which includes dealer fees and taxes, consider ownership costs such as insurance, maintenance and gas.

How can I finance my first car purchase?

Financing options include traditional auto loans from credit unions, dealerships or banks and leasing and special programs for first-time buyers with no credit history. Compare rates and terms to find the best option for you.

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