You’re ready to buy your first car! You’ve scoured every Craig’s List ad, Googled every vehicle you love, combed every dealership in a 50-mile radius.  Now, you’ve finally found the perfect car and you’re oh, so ready to drive it home. But, did you have a budget in mind when you started?  Do you have a down-payment? What is the annual cost of car ownership? Are you adequately insured? Picking out the car is the fun part, but successfully buying your first car requires planning. Let this guide be your roadmap to navigating the unchartered territory of buying your first vehicle.

Plan Your Budget

It’s not all about the look, the color, the features – it’s all about how much you can afford. As a rule of thumb, your total auto expense should not exceed 20% of your take-home monthly pay. Let’s look at what you should calculate into your total auto expense, in addition to your car payment.

Gas money is mission critical.  After all, you can’t drive a car that’s out of gas. Consider how and why you’re using your car. Are you driving to and from work or school? How many miles will you drive per day? What type of gas mileage does your dream car get?

Insurance is mandatory in nearly all states and any company financing your vehicle will require proof of coverage before the car leaves the lot. To better understand insurance coverage, AutoInsurance.org has a great guide explaining the different types of auto insurance coverage. And, if you need help, your insurance agent is a wealth of information.

Registration fees will be added to the price of your car before you drive it off the lot. But, every year, the Department of Motor Vehicles will send you a renewal bill. Vehicle renewal is based on the value of your car and should decrease over time.

Monthly maintenance and repairs are major factors you cannot ignore.  If you’re buying a new car, chances are repairs won’t be a big cost during your first year. Maintenance is key to keeping your car in good working order. Oil changes, car washes, tire balance and rotation are just a few of the expenses to add to your budget. Build out a routine maintenance schedule so you’ll know what it takes to keep your new car running great. After all, an ounce of prevention is worth a pound of cure.

Using the 20% rule, if you take home $3200 a month, your total auto expense should be no more than $640. If your car payment is $375, that leaves $265 for your other expenses.

Your Down Payment

As the car industry becomes more flexible in meeting consumer needs, the standard 20% down payment has all but vanished. According to an Edmunds analysis, the average down payment was about 10.4% in 2015. Perhaps the best indicator of your down payment will be your credit score, which you should carefully check on a regular basis.  The better (or higher) your score, the less money down you’ll be expected to pay. Zero down payment is often available to well-qualified credit. It keeps more money in your pocket, and eliminates the month or years you’ll need to save up for your new car. Be prepared for higher monthly payments under a zero-down strategy. A larger down payment offers some advantages. With a larger down payment, you’ll be able to shorten the length of the loan and still maintain reasonable monthly payments. The important steps of creating your car budget will give you useful information to plan for your down payment.

Lease or Buy?

Leases can be complicated and buying can be an up-front cash cow. Each option has its pros and cons, and careful research will help you make the best decision based on your financial situation. When you buy a car, you will actually own it someday – and you’ll be free of car payments. You begin to build equity in your investment. Once paid, you can take out a loan using your fully owned vehicle as collateral. The new trend toward car title loans opens up opportunities when emergencies arise. For people who dread the car buying process, you don’t have to return it to the dealership on a fixed schedule and begin the buying process again. The disadvantage of buying is the higher initial cost when a down payment is required, or the (gasp!) chance you’ll want to trade it in long before the loan is paid off. The greatest benefit of leasing a car remains the lower upfront cost. Add in lower monthly payments and the joy of getting a new car every two or three years and a lease looks good. But, unlike buying a car, a lease has recurring payments that never go away and you never build equity. Every lease is entered into with a maximum mileage restriction and that alone may make leasing unappealing. You will be absorbing the depreciation during the most expensive part of the car’s life with no equity stake. Entering into an open-end lease will give you the equity, but you will have a mandatory purchase at the end of the lease – be prepared. Educating yourself on different lease types and buying options will give you the assurance to know what’s best for you. If you decide to buy, pre-qualify! Having your funding in line before entering the dealership will put you in a much better position. Not only will you know which cars you can afford, you will know your approximate monthly payment and interest rate. In today’s technology-driven world, there are a number of online car loan services and clearinghouses. If you have a specific model in mind, look at their financing options. Brands such as Chrysler, Chevrolet and others have financing programs in place for both new and used vehicles. Your local credit union or bank is a great place to start. If you’ve maintained a banking relationship with them, the process should be fairly quick and easy. Once you know the amount you’re approved for, you’ll be less tempted to look at that Maserati or Bentley.

Homework Done?  Ready … Set … Go!

Once you’ve put in the hours of research, budgeting, getting insurance, pre-qualifying for your loan and saving up your down payment … whew! … the fun part of the process can begin. It’s time to get that new car in your driveway. Spend some time looking online to find the cars that meet your requirements.  Do you want a sedan or a sports car? Which cars get the best gas mileage? Will you be hauling around six kids or one friend? What features are important? Do you want a sunroof, leather seats, rear camera? All these factors combine to determine your perfect car. If you can’t afford high insurance premiums, then avoid those V8s and sporty cars. Opt for an SUV or fuel efficient 4-door. To find the safest vehicles on the road, check with Insurance Institute for Highway Safety which reviews numerous accident scenarios and rates vehicle safety. Check the web for makes and models with incentives.Toyota has been offering whopping cash back incentives on the Avalon, while Subaru has been offering low lease payments on its Impreza. Arm yourself with information before going to a dealership. You’ll want to know what you should pay, so you’ll know when you’re getting a good deal.  Once you’ve narrowed down your choices to just a few cars, take ‘em for a test drive. This is when you can see how the vehicle handles, how much room is in the back seat and what capacity the trunk has. After the test drive, you can confidently make an offer on the car you want. Before you finalize your deal, make sure you contact your insurance agent and bind coverage. Finish up the paperwork … then hit the road.
Happy car buying, my first-time buyer friend!



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