There’s a lot more to owning a car than making monthly payments. Getting your first car, is in a lot of ways, is like adding a new member to your family. And, just like family members, that car will have considerations to which you’ll need to attend.
With that in mind, here’s what to know before buying your first car.
Far too many people car shop with their hearts rather than their heads and end up with cars that do not mesh with their lifestyles. Be honest with yourself about what you’ll need that car to do. Do you have young children? Do you take a lot of long trips? Do you have a sizable pet? Will you need to transport an older relative and/or friend? Do you enjoy outdoor sports such as mountain biking, kayaking, skiing, or the like? All of these issues figure into the type of car you should buy. A two-seat sports car is out of the question for you if you answered yes to any if those questions. However, you can still find something enjoyable to drive if you shop carefully.
Cars cost money — period. When you own a car, you’ll make the monthly payment, you’ll have insurance to cover and you’ll need to keep it fueled. Therefore you must also take into consideration how the car you add to your household will impact your budget. The best way to start is to get a handle on what you’re already spending each month to cover your bills, meals and thrills. You should also have an emergency fund of at least six months worth of expenses set aside. Total all of that up, subtract that number from your total after-tax take-home pay and you’ll have a rough idea of what you can afford to pay for a car.
Your Credit Score
In most cases, you’ll be shopping for a car loan as well as a car. The smart play here is to get pre-qualified for a loan so you can get the best possible deal on financing. This is true, even if you plan to take advantage of first time car buyer deals. Before you apply for loans however, it’s a good idea to see what your credit score is, so you can have an idea of what constitutes a good interest rate when you find one. You can get your credit score from any of the three main credit reporting agencies, Experian, Equifax or TransUnion. Most banks offer the service as well. It’s also a good idea to review each of your three credit reports, which you can get for free at AnnualCreditReport.com.
You Need a Down Payment
While it is entirely possible to buy a car with no money down, doing so is a bad idea. The more of the purchase price you finance, the higher your monthly payment will be. And, the more likely you will be to owe more on the car than it is worth. Depreciation takes a serious toll on the value of a car during its first few years of ownership. Going in with at least a 20 percent down payment will help keep you “right side up” in your loan. That way, if you need to sell the car, you can get out of it without owing any additional money.
Being aware of these four points will make buying your first car easier and ultimately less expensive. You’ll qualify for your loan with less trouble, you’ll beat depreciation and you’ll get the right car for your lifestyle at a price you can comfortably afford.