Six Tips for First-Time Car Buyers
By Zina Kumok for Experian
Buying a car is the first major purchase for many people, particularly young adults. If you're new to the credit and financing world, pump the brakes and pull over to check out these six tips you should know before buying your first car.
1. Avoid a Car Lease
When you go to a car dealership, the salesperson will probably show you some models that are way out of your price range. It's the nature of their job to upsell customers, so they'll try to explain why leasing instead of buying makes good financial sense.
Leasing always sounds tempting — especially since it has a lower monthly cost than buying a new vehicle — but it's generally more expensive in the long run. You still must pay for regular maintenance on a leased vehicle, and the dealership can charge you fees if the car comes back damaged or with excess mileage.
Plus, after the lease is over, there's no asset to show for the thousands of dollars you've spent. Unless you'll need the car for only a couple years and can deduct your mileage as a business expense, buying tends to be the better option.
2. Buy Used
There's nothing better than getting into a new car—the perfect industrial smell, the pristine seats, the sparkle of a new paint job. But as soon as that new car drives off the lot, the value automatically decreases. According to Edmunds, a new car will lose 11 percent of its value once sold. A new car will continue to depreciate significantly for the first five years of ownership. After five years, the resale value is 37% of its initial cost, according to Edmunds.
A car that's more than five-years old will still have most of the latest tech and safety features, while also being a more frugal option than a brand-new car. Check Kelley Blue Book’s Best Resale Value Award winners to find cars that boast the slowest depreciation.
3. Consider Alternative Financing Options
Most grads take out an auto loan on their car, with many choosing to use the dealer's lender. In fact, some don't even realize you can find your own car loan. That's a shame, because third-party financing is almost always cheaper.
If you already have a checking or savings account at a bank, ask about your auto loan options. After that, contact a local credit union to see if it offers lower interest rates. It's always best to shop around with two or three different lenders before committing.
The dealership is never obligated to give you the best terms, so always assume you can find better rates elsewhere.
4. Read the Contact Carefully
Any time you buy a car, you're entering into a legal agreement with the seller. Whether you bought the car on Craigslist or at a car dealership, the agreement is binding. In most cases, there's nothing you can do once the papers are signed and the keys have been handed over.
That's why it's critical to read the sales terms before you sign. There are countless stories of salespeople including extra features in a car purchase that the buyer originally declined, like an extended warranty or tire insurance. For most grads, this will be one of the first big financial decisions they make after leaving college —s o it needs to be thought out carefully.
5. Get the Car Inspected
Always get a used car inspected by a trusted mechanic before you buy. If a dealership won't let you get an impartial inspection, that's a red flag. Even if the car looks great on the outside, you never know what's going on under the hood. A thorough inspection can save you thousands of dollars and endless aggravation. You might have to pay a small fee for the inspection, but it is worth it.
6. Negotiate the Price
Whether you're buying the car from a friend of a friend or a dealership, you need to learn how to negotiate. Negotiating can save you thousands off the total purchase, and in many cases save you from overpaying.
First, look up the car's value on Kelley Blue Book and Edmunds.com. Input its total mileage, current condition and any extra features it has, such as tinted windows or a sunroof. Once you have a few estimates, subtract 10 percent to 20 percent and come back to the seller with your offer. If you're buying the car in cash, use that as leverage.
Sales personnel at a private dealership often must reach a monthly sales quota, so it's often a good idea to buy when they’re most willing to make a deal — the end of the month.