Guide to first-time car buying: six tips you should know
Quick insights
- Setting a clear budget and saving for a down payment could help you focus on vehicles within your comfortable price range.
- Researching your options and prequalifying for an auto loan may give you a better understanding of your borrowing power.
- Exploring special manufacturer programs and knowing what to avoid could make the purchasing process much smoother.
Your initial vehicle purchase is a major milestone in adulthood, right next to your first real tax return and your sudden appreciation for comfortable shoes. A quick guide to first-time car buying could turn a stressful showroom visit into a smooth victory for your wallet.
Six tips for first-time car buyers
Preparing yourself before you step onto the dealership lot could make a significant difference in your overall experience. Following these six foundational steps may help you navigate the process smoothly and secure a vehicle that aligns with your financial goals.
1. Know your budget
You may wish to learn how to make a budget and focus on cars within your price range and avoid financial strain.
- Calculate your monthly income: A review of your recent pay stubs provides a clear picture of your take-home pay to build your budget foundation.
- Review your current expenses: A deduction of your rent, groceries and other regular bills from your income reveals how a new vehicle payment might fit into your financial life.
- Factor in total transportation costs: Many financial experts suggest you keep your total monthly transportation costs, including gas or electric charge, insurance and maintenance, below 15 percent of your income.
2. Determine what type of car you want to buy
Thorough research before you visit a dealership can help you find a vehicle that matches your daily driving needs.
- Create a feature list: A list of must-have features and specific questions about your lifestyle can help you narrow down the vast market of available cars.
- Review safety ratings: A comparison of safety ratings from organizations like the Insurance Institute for Highway Safety can help you identify the most reliable options.
- Consider the total cost of ownership: A quick search for common maintenance issues or details about car fuel economy can help you avoid a vehicle that drains your wallet over time.
- Schedule a test drive: A physical inspection and a test drive can reveal comfort issues or blind spots that online reviews miss.
3. Save for a down payment
An upfront payment, often called a down payment, can reduce your total loan amount and potentially unlock more favorable terms.
- Understand lender preferences: A larger contribution, such as 20 percent for new vehicles or 10 percent for used cars, reduces the risk for the lender and can lower your interest rate.
- Determine your target amount: You can multiply the total purchase price of your desired vehicle by your target percentage to find your specific savings goal.
- Use digital tools: An online payment calculator can help you visualize how different down payment amounts might affect your monthly obligations.
- Automate your savings: With Chase Autosave, you can automate monthly transfers from your checking account to your savings account to reach your goal faster.
4. Improve your credit score
When you apply for an auto loan, lenders typically pull your credit report to see if you qualify for the funds. They also check your credit score, with a score of 670 or higher generally considered good by most scoring models. However, first-time buyers with a lower score or no credit history at all may still qualify for a loan through special manufacturer programs.
An improved credit score over time can help you secure lower interest rates on future purchases. You may wish to check your credit score and monitor any changes. A consistent history of on-time payments and low credit utilization could have a positive effect on your ability to secure auto financing.
5. Prequalify for an auto loan and shop rates
When evaluating financing options, you may want to prequalify across multiple lenders to better understand your borrowing power and potential interest rate. This step provides valuable information when you are ready to discuss a loan at the dealership. In addition to prequalifying, you may also wish to investigate additional charges, such as loan processing fees, that could apply to your auto loan.
6. Negotiate price
Before you purchase a vehicle from a dealership, consider asking about additional fees and seeing if you can negotiate the price.
- Negotiate the sticker price: A comparison of similar vehicles in your local market establishes a strong baseline for your initial offer so you can learn how to negotiate a car price.
- Time your purchase: A patient approach can help you capitalize on seasonal sales events, such as cash back or low introductory APR promotions.
- Decline unnecessary extras: You can decline add-ons like extended warranties or special accessories if they do not fit your budget or provide genuine value.
Ways to get a better loan for buying your first car
If you face challenges with an auto loan application on your own, a few alternative strategies might help you get behind the wheel.
Consider a co-signer or co-borrower
A co-signer is someone with a strong credit history who provides a safety net for the lender and agrees to take responsibility for the loan if you miss payments. A co-borrower shares equal ownership of the vehicle and equal responsibility for the debt from day one. Check with your lender to see if they allow having a co-signer or co-borrower.
Explore first-time buyer programs
Certain car manufacturers offer special incentives for recent college graduates or individuals with limited credit history. You can speak to the dealership about these options to see if you meet their specific requirements. These programs can often help a first-time buyer secure a lower interest rate or a larger loan amount.
What to avoid when buying a car
You may want to avoid these common mistakes when you finalize your vehicle purchase.
- A focus on just the monthly payment: A review of the total purchase price can help you understand the true cost of the vehicle, as a longer loan term often increases the total amount of interest you pay.
- A missing vehicle history report: If you buy a used car, an independent verification of the vehicle history report provides peace of mind before you finalize the transaction.
- Rushed decisions: A patient approach allows you to test drive multiple options and secure the most favorable loan terms for your investment.
- Ignored insurance costs: A quick quote from your insurance agent before you buy can prevent unexpected budget strain from higher premiums.
The bottom line
A first car purchase is a major milestone that benefits from careful research and financial preparation. A clear budget and a solid down payment can help you secure a vehicle that fits your lifestyle. When you explore your loan options and negotiate wisely, you can drive away with confidence.
