First time car buying can be daunting. For many it can be the largest purchase of their lives. It will be something can affect you for years to come. Making the best decisions you can will save you money in the long run. 

There are two ways to get into a car. Pay all cash or finance it with a loan. You can also lease a car and eventually buy it if the lease contract has an option to do so. 

What alternative is better than that?

Because cars depreciate – lost their real value – very quickly, buying in cash is usually the best option. And if you’re looking to buy a beater that’s just going to get you from point A to point B, cash can be your only option.

Lenders typically have limits on the age or mileage of used cars they ‘re going to finance. So if you’re looking at $2,000 of high-mileage options, you ‘re going to have to plan to save money. Thankfully, since the price level is so much smaller, you don’t have to pay too much.

But what if you want a newer vehicle or need it? You may not want to pay $30,000 for a brand new model. But if you want your car to last a few years, investing in a newer, lower-mileage option up front can be a wise decision.

In this situation, it’s also a smart thing to save money if necessary. Those monthly car payments can be eaten into your budget quickly. With that said, most of the Americans who drive do finance their vehicles.

Perhaps, earlier rather than later, you need a ride. And it’s all right to invest if you get it correctly. Yet while you’re investing, take the five ideas that we’re going to tackle:

  • Keep the credit in sequence.
  • Put as much of the money down as you can.
  • Okay, consider the estimate.
  • Shop around for the perfect price on funding.
  • Plan to save more cash on your next vehicle.
  • Get your credit for the order

It’s important to keep your credit in order before you start shopping for a car. We’ve written extensively on how to do this, so in a second, we ‘re going to steer you to some other options.

But, first of all, let ‘s understand why this is so important. For better credit, you ‘re going to apply for better funding. This means you’re going to get a lower interest rate. And that could save you tons of money over the life of your auto loan.

Let’s say you’re planning a $10,000 car loan. With a score of 630, you can qualify for 7% APR at today’s rates. For a score of 700, you will apply for a 4 percent APR. (Note that these are all off-the-cuff definitions to give you the math.) You ‘re expecting a four-year term.

According to our loan payment calculator, you ‘re going to pay about $239 per month with the higher APR. With the lower APR, the contributions are going to be $225 a month. Plus, you ‘re going to pay a lot less interest over the life of the loan.

As you can see, it’s worth taking time to get your credit score in order, if at all possible. Here are some steps you can take to do this:

  • First, get a copy of your score so that you know where you stand.
  • Next, correct any mistakes on your credit report.
  • So, make all your transfers out of here on schedule.
  • Consider asking for adjustments of goodwill to existing missed payments.
  • Pay off your credit cards to increase your credit usage levels.

As you work on improving your credit score, start sowing as much money as you can for your down payment.

Put as many down as you can

Just like when you buy a home, when you buy a car, you ‘re going to put your money down. That is the cash you paid so you can bring in for the buying of a vehicle. It reduces the total amount of funding you ‘re going to need. And it’s a good idea to have a high down payment whenever possible.

There are a few major reasons for this: depreciation and interest costs.

First of all, let ‘s talk about depreciation. Since cars are exposed to a lot of wear and tear, they lose their worth very easily.

This is particularly true of newer automobiles. For example, this infographic from Edmunds shows that as soon as you leave the lot, a brand new car loses about nine percent of its original value! After one year, the car will lose about 19 percent of its value, and after just two years, it will lose 31 percent of its value.

Actual depreciation rates differ by type and build. Cars that continue to last longer would have a higher rating. Yet, still, the average vehicle is just 37% of what you paid for at the dealership five years after your purchase.

So, what does that mean for a car buyer? It means you can get yourself into the upside down loan really fast.

The upside down loan is when you owe more money to a piece of property than it is worth. Say you’re going to fund 100 percent of a new car for $30,000. You decide to sell it a year later to get something else. It’s only worth $24,300 now. If you don’t put any money down, you potentially owe the bank more than the worth of the car. Yeah, obviously, you’ve got to pay the bank money before you can sell the car.

It’s not a good financial place to be in. It really restricts your ability to make choices when you purchase your car in the future.

Fortunately, you can minimize these consequences by making a reasonable down payment on the car. If you’re buying a used car, it’s prudent to set down 10% of the vehicle’s selling price. If you’re buying something new, bump that down payment up to 20%.

These down payment amounts will keep you ahead of depreciation, so you’ll never end up on your loan. Of course, the larger your down payment, the smaller your down payment. That means reduced mortgage costs, less debt over time, and an much less risk that you’re going to finish upside down on your loan.

Understand the budget

Your spending would have a significant effect on how much car you will afford. And there are two parts to this puzzle: the overall auto loan and the monthly payments.

First, you need to look at how much you can afford to spend a month on car payments. This means looking at your current budget and determining how much you can comfortably allocate for this expense.

Potential borrowers are always going to have an view here. For the most part, borrowers don’t expect you to spend more than a portion – or a little less – to your mortgage income. So if you have a lot of credit card debt or an expensive mortgage payment, you may be more limited in your monthly car payment.

You’ll still want to know how much overall debt you ‘re able to pay off. If you’re working to stay debt-free, less is better off. Really, less debt is almost always better.

Irrespective of these figures, you ‘re going to want to put strict limits on both the monthly contribution and the overall amount of debt you ‘re considering. This is going to help you stay in control when you’re in a lot with a dealer who’s trying to upsell you.

Shop around for funding

Many first-time buyers are tempted to go to a dealer and take whatever funding they offer. But this isn’t a good idea, though. For one thing, the financing of dealers tends to have less favorable terms. And if you take time to shop around, you’ll get a better deal.

To do this, you just need to get a pre-qualified auto loan with two or three different lenders. It’s also a smart idea to consult with a bank or credit union of your own. And if you’re not a member of a credit union, you might just become a self-financing one. They tend to offer the best terms, and they are more likely to work with you if you don’t have excellent credit. When you have decent ratings, you might also find out more opportunities for lending platforms like Lending Club or Prosper.

The key is to compare terms from a few different lenders so that you get the best deal possible. You are eligible for a loan with little, if any, payments and the lowest possible interest rate. You might also ask about different terms of the loan. Often a shorter period coincides with a reduced interest rate, and the price will not be too much higher.

And don’t worry, shopping around will negatively affect your credit score. Putting too many credit applications will render your score. But scoring algorithms like FICO allow you time to shop around for large loans like this.

FICO will give you between 14 and 45 days to shop around. All your requests for the same type of loan within that period will be treated as a single inquiry. It’s a good thing! Since you don’t know which scoring model a potential lender is going to pull, it’s best to stick to the 14-day rule. Do all your pre-qualification shopping within two weeks of your purchase of your car.

As you’re shopping around, your goal is to find the best funding deal you can get. It’s a good idea to ask for funding that matches your maximum car purchase budget. If you end up in a cheaper vehicle, all the better.

Having a pre-approved loan makes it easier for you to negotiate, whether with a dealership or an individual. The person you ‘re dealing with knows that you have funding in place, and they’re going to see you as a legitimate prospective buyer.

If you have been pre-approved, you will receive an bid message from the lender. This could be in the form of a blank check with a limit set, a certificate, or a letter. You ‘re likely to get a code to activate your loan online these days.

This doesn’t mean you’re going to use the money. It just means there’s money available.

Intend to save money for the next time

When we’re dreaming about owning your first car, let’s think how to make the experience even easier next time. If possible, you should try to have only one car loan in your life. After this first ride, you will use your car’s equity and any money you’ve saved to pay cash on the next ride.

To do so, consider making more space in your budget so you can save money for your next ride. For eg, tell me that you can happily afford a $300 / month car payment. Instead of taking up the full amount, try to pay $225 per month. Then save an extra $75 a month. Just consider that part of the payment for your car.

It doesn’t seem like a lot of it. But let’s say that your car loan will be paid off in three years. You ‘re going to have some equity in your car, plus $2,700 saved for your next vehicle. After your car is paid off, you can save the entire $300 per month you’ve spent on a car. At the end of the time, you ‘re going to have $6,300 in cash and your car’s equity. And you’re going to switch into your next vehicle completely debt-free!

First up, The Car

Now that you’ve worked out the financial aspect of this equation, it’s time to find out what kind of car you want to purchase. You’ll need to prioritize your needs and needs for a vehicle, and then look at the different types of cars that suit your needs. Then you’re going to have to shop around to find the car that’s best suited.

Identifying desires and wishes

You’ve already got an idea of what sort of car you can buy. So that’s going to help limit the field right off the bat. Yet there are still already a wide range of vehicles available to meet the target.

So now is the time to decide what you really need in a vehicle, and then a few things you might want.

I ‘m going to use my family as an example. We ‘re really planning a car shop in the next six to twelve months. Here’s what we do need:

A car that will last for at least five years

Sufficient seats for six or more people – enough for our family plus two or more.

Decent gas mileage in the city – because my husband is in our city for his job.

There just isn’t a lot on our list of needs. But there’s a lot on our list of needs, including:

  • External sliding screen
  • Back-seat heating and ventilation regulated separately
  • Leather upholstery-because children
  • MP3 and cell phone charging jacks
  • Build-in under-seat room
  • A trunk of decent quality

And our five-year-old would love to have TV screens in his back.

I would also like to see a limo-style roll-up window for children and adults. Still, unfortunately, I think the odds are slim.

So what do your needs and want the list to look like? Chances are it’s going to be arranged a little like ours. You ‘re going to get a few things you really need from a car, but a lot of stuff you ‘d like to have.

Do your research, please

Now that you know what you’re looking for and what you expect from a car, consider a few makes and models that would fit you. The bigger the quest, the easier it would be to shop for a vehicle.

You want to look at a variety of different topics while you’re studying, including:

  • The mileage you can expect from the make / model in your price range.
  • The actual five-year cost of owning the vehicle, which you can find here.
  • Public reviews for the car
  • Data about how long the car is going to run
  • General availability of the vehicle in your price range and in your area

It’s important not just to choose a make and a model that seems to have what you need and fit your budget. This is especially true if you buy used vehicles and want to own them for another five years or more. In this case, do your due diligence to ensure that your vehicle lasts long enough to meet your needs.

Travel about here

It’s special depending on whether you’re buying a new car or a vintage car. If you’re considering a brand new vehicle (which isn’t the right option, by the way!), you ‘re just going to need to find a few dealers that sell the make and model. If you’re buying used, you ‘re going to want to check online for the car lists.

When browsing around for a used car, consider purchasing directly from an customer. With due scrutiny, this will be a secure method that will eventually save you thousands of dollars. You can buy from an individual seller even though you fund the car. Here is a list of sites to consider when shopping around for a vehicle.

When you’re buying from a manufacturer, ask if they’re selling some sort of car insurance for some amount of time. If you don’t, you could try another dealer.

When browsing around for a used car, consider purchasing directly from an customer. With due scrutiny, this will be a secure method that will eventually save you thousands of dollars. You can buy from an individual seller even though you fund the car. Here is a list of sites to consider when shopping around for a vehicle.

When you’re buying from a manufacturer, ask if they’re selling some sort of car insurance for some amount of time. If you don’t, you could try another dealer.

For a broker, you can be able to get an extra cash discount – even though the cash is from a pre-approved loan bid. You can also question the dealer for dealer-based financing. First, don’t tell them what your offer is in hand. In this case, they may undercut the interest rate of the original lender! Here you can get more tips for negotiating with a dealer.

You will also determine the price while dealing with a private seller. Most of the buyers are eager to get rid of their vehicle as quickly as possible, and they’re likely to come down on their first selling price. You could also negotiate to leave the car at the same price if the seller pays for the inspection and any essential repairs that occur during the inspection.

Buying a car

The actual buying process can vary based on where you buy a car – from a dealer or an person. Here are a few tips for both situations:

Buying with a broker

When you buy from the dealer, you sign the papers in the sales room. When you decide to fund dealers (which is fine if they offer a better deal than your pre-approved offer), you will sign up for both financing and sales in the office.

This is a relatively straightforward method. Just be sure that you’re looking at all the paperwork and asking for any additional fees that pop up. Dealers would always hurry you into the paperwork, so you might end up charging more than you paid if you weren’t patient. Just go slowly, and take your time when you need it.

Buying with a private seller

Buying from a private party might be a bit different. It is particularly valid if the car is only loan, and the seller has no title in his pocket. It’s all right to buy a car with a connection on it, but it makes the operation a bit more complicated.

First, you ‘re going to have to check with the bank that owns the link. They’ll hand over the title to you or the new link holder at the time of sale. However, this could prolong the offer. This time, you can refuse some by making a deal with a bank that owns a connection. When the seller uses the proceeds to pay off the balance of the loan, you or your lender can sign the title as needed.

When you purchase from a private party, you will also need to make sure that you fill out a transfer of ownership document. This is supposed to come with the title. That should provide details about how many miles there are on the car at the time of the sale and how much the vehicle is being exchanged for.

Also, make sure the car registration is up to date. If this is not the case, you could be on the hook for any late fees associated with it. In fact, it’s a good idea to get proof of this before your scheduled date of sale. This way, the vendor will take care of this problem if they are currently behind the cost of the card.

After You Buy

Now that you’ve finally bought your first car, what do you do with it? Actually, you’ve got to take a few steps. Here ‘s exactly what you need to do:

Ensure the vehicle

Actually, if this is the very first car you ‘re going to own, you need insurance before you buy a car. A dealer won’t let you drive away without auto insurance, so you’re not allowed to drive a privately owned vehicle with no insurance, either.

Running a vehicle with no liability insurance is illegal in most countries. And if your car is financed, the lender will usually require full insurance coverage to cover their investment in the event of a total loss.

If you currently have a auto insurance policy on someone else, or your parents, you can move or apply insurance to your vehicle at the time of delivery. Even if you don’t have auto insurance right now, you would want to look around before you buy it. You will buy a contract that begins on the day you buy the car.

What’s with the distance insurance?

Many times, dealers will sell you a distance insurance scheme. It is particularly valid if you don’t have a big down payment on a vehicle.

Remember earlier that we were thinking about depreciation? As soon as you get your car off the lot, it’ll be worth less than it is now. So if you make a small or no down payment, you may be upside down automatically. If you wreck your car while it’s still upside down, your regular car insurance will pay for what the car was worth at the time of the accident. That could be less than the overall amount left on your auto loan!

In this scenario, the compensation difference can be a fair extra cost.

Gap insurance is an alternative form of policy that would cover the “distance” between the value of the auto and the remaining balance left on the debt if you paid the actual cost of the vehicle. If you’re making a small down payment, buying a low resale car, or putting miles on your car quickly, gap insurance might make sense.

Gap insurance also makes sense if you’re borrowing a longer-term car. The longer your term, the slower you ‘re going to pay down the principal of the loan. That means you might be upside down for a longer time. (Of course, if you plan to fund your vehicle for more than three or four years, you will first challenge the initial buying price!)

Also, dealers can sell a void insurance scheme when you close your car. But you can also purchase gap insurance independently, either through your regular auto insurance company or as an additional policy.

Sign your car

You’ve probably seen the dealer’s lots of cars driving around with paper license plates. They’ve always got a famous date on them. This is the last day on which the dealer-issued registration is valid. Upon this point, the vehicle driver will have his own license with the state to legally drive the car.

When you’re shopping around for a car, check out the DMV or BMV website for your likely registration costs. Some cars are worth a few hundred dollars! If you need to, reduce your down payment so that you have enough money left over for this additional cost.

Also, check with your DMV to see what you need to bring in to register your car. You will often need to have a current driver’s license, proof of address, and possibly an additional form of identification.

You will leave it in the car until you get the paperwork. And be sure you ‘re going to have to pay for the annual registration and license renewal bill! After you purchase the vehicle, the average expense would be much lower, much of the time. You figure out as you sign how big they ‘re going to cost, and add them to the budget as a one-off expense.

Take good control of the engine

The best way to make sure you get the most of the miles out of your first car is to take good care of it. Consult the owner’s manual of the vehicle (you may find this online if your used vehicle is missing) and figure out whether you can expect to do routine repairs on the car.

Then find a mechanic that you like to work with for your repairs. It’s a good idea to work with a local mechanic who knows your car and its history. And when you find someone you trust, you can lean on them for advice on when to perform major regular maintenance, such as replacing timing belts and other things that will help your car last as long as possible.

Again, once you buy your car, you should be budgeting for maintenance costs every month. Even if you’re buying new ones, the cost of tires, oil changes, brake pad changes, and other regular items can add up really quickly!

Leasing

Leasing can be the best option for some. Leasing is basically a long term car rental. Gloss over the advantages and disadvantages and see if it’s the right fit for you. 

Advantages:

  • Lower downpayment
  • Lower monthly payments
  • More financially flexible
  • Possible option to buy after contract

Disadvantages

  • You don’t own the car
  • No modifications allowed
  • More expensive long term
  • Limited annual mileage
  • Damage fees upon return

The simple advantage here is that you can get into a car with a lower down payment and lower monthly payments. You have the option to break the lease and usually pay a months penalty. 

Other than that, enjoy owning your new car!

A Continuation: Preparing For Success Part III