How to Buy Your First Car

When buying your first car, you may spend hours researching different brands, models, dealerships, and even the various colors for your potential vehicle. However, if you plan to finance your first car, it’s also important to explore financing options and take the necessary legal steps to become the owner of the car. By looking at the big picture of how to buy a car, you’ll be able to drive your favorite first car while keeping your finances intact.

Determine How Much You Can Afford

The first thing you need to do is determine whether you can easily afford a new loan right now or if you need to save more money for a down payment. Saving can reduce the amount you need to borrow to buy a car.

If you have the financial stability to get a car loan, figure out how much you want to spend on the car based on what you can afford monthly.

Create a budget to calculate how much you can afford to borrow:

• Add up your total monthly income. Include wages and any freelance income.
• Add your living expenses. Include fixed expenses that don’t change (like rent and utilities, for example) and variable expenses that fluctuate, like food costs, entertainment, and emergency expenses.
• Add usage costs. Include car insurance, registration, and maintenance costs.
• Subtract all costs from your income. The monthly loan payment should be less than the resulting figure.

Note: Keeping the budget in mind is one of the most important tips on how to buy a car according to your financial capabilities. Don’t let yourself get swept away by the excitement of getting your first car. This strategy will help you avoid financially overstretching yourself and falling into deep debt when purchasing a car.

Research Lenders

Naturally, the amount you can afford to buy your first car will determine the type of vehicle you choose to purchase. So, once you’ve defined your budget, start looking for a loan.

You can secure financing from one of the following sources:

• Direct Lender: This is the bank, credit union, or other financial company from which you secure the car loan directly. You may be able to get a better deal from a direct lender. Many direct lenders may not guarantee the rate until you sign the papers, but they will give you pre-approval for the loan amount and current rate. You may be able to negotiate better financing terms when you arrive at the dealership if pre-approval is done beforehand.
• Dealership: This is the authorized company to sell cars. You will enter a financing agreement with the dealership, but they will source from a direct lender. Getting financing from the dealership allows you to bypass a separate visit to a lender and may offer multiple financing options and incentive programs.

Don’t automatically go to your local dealer for financing. Start by contacting several banks or credit unions to inquire about interest rates, loan terms, and any borrowing limits.

Research Cars

Now that you’ve set your budget and secured financing, it’s time to start searching for a car. Decide whether you want a new or used car and what brand, model, and features you desire. You might face fewer issues and benefit from more years of use with new cars, but they cost more and depreciate quickly. A used car could be a better deal, but be prepared for more repairs and a shorter useful life.

Next, shop at car dealerships or online sources or look for private sales through classified ads. Test drive new or used cars in different road conditions. While it’s always wise to have a used car inspected by an independent mechanic before purchase, even if the dealership has certified its condition, this step is even more crucial if you choose to buy from a private seller. A good mechanic can tell you if the car has been in an accident or has been damaged, or if there are any major issues with it.

If

I chose to get a car from a private seller, also obtain the vehicle’s service record and ensure that the seller is the owner (the title and registration should be in their name) and that there are no liens on it.

Note: If the seller seems reluctant to let you take the car to a mechanic, that’s a red flag.

Negotiating and Signing the Contract

Once you have chosen a car, you will need to negotiate the price of the vehicle and sign a financing contract.

When negotiating, try to get the best price for the car and the best financing terms, including a low-interest rate and a reasonable loan term. Come prepared with estimates for wholesale or dealership prices for the car you want and any pre-approved loan terms you have obtained. Remember that a longer loan term may result in lower monthly payments, but because you will be making payments for a longer time, you may pay more in interest fees over the life of the loan compared to what you would pay with a shorter-term loan.

Contact your lender or dealer to finalize the details. Before signing the contract, make sure you understand the repayment schedule and the interest rate and that you are not signing any hidden fees.

Registering the Car and Obtaining the Title

Once you become the owner of the car, you will need to obtain the vehicle title in your name, register it, and get license plates to legally drive it. This applies even if the dealership provided you with temporary plates. In some states, the dealership will apply for the title and registration on your behalf and provide you with the plates, and you will receive them.

If not, or if you bought a used car or purchased it from a private seller, you will need to apply for the title (or transfer the title from the previous owner) and registration at a local government office, which may be the local Department of Motor Vehicles, the Department of Transportation, or the municipal tax office depending on where you live. You may need to accompany the private seller to the office to complete the title transfer.

Note: You are not allowed to register your car until you find and purchase car insurance. You will need to bring proof of insurance with you to the government office.

Other Tips for Buying a Car

Keep these considerations in mind while shopping for your first car:

• Do not automatically buy a new car. A car is an asset that depreciates over time. You can save a lot of money by buying a used car that is two or three years old.
• Sell your car yourself instead of trading it in. This is an option if you are looking for your second car. You may be able to make more money by selling the car directly.
• Do not become upside-down on your car. This happens when you owe more on a car than it is worth. This is bad because if you try to sell your car, you will not be able to pay off the loan with the sale price of the car. Additionally, if your car is totaled or stolen, the insurance check may not cover the remaining loan amount.
• Save and pay for the car in cash if possible. This will free up your income since you will no longer have a monthly payment. Also, you will save money on interest.
• Join a car-sharing service. If you are unsure if you need a car or are trying to save money to buy one, you might be able to benefit from a one- or two-year membership to save enough to buy your own car.

Was this page helpful?

Thank you for your feedback!

Sources:

• Federal Trade Commission. “Financing or Leasing a Car.”
• Consumer Financial Protection Bureau. “How should I decide how much I can borrow for a car loan?”
• National Credit Union Administration. “Buying a Car: Getting Started.”
• Texas Attorney General. “Buying a New or Used Car.”
• Federal Trade Commission. “Buying a Used Car.”
• USA.gov. “Buying a Car.”
• State

Georgia for Consumers. “The agent will not submit the vehicle address application.”

Source: https://www.thebalancemoney.com/how-to-buy-your-first-car-2386025

“`