Buying your first car is exciting — and expensive. Your head is filled with images of you in the driver’s seat, friends in tow, cruising around town or chasing down the open road on an epic road trip — but hold on. There is a cost to car ownership, and you don’t want to bite off more than you can metaphorically chew.
You might not realize this yet, but there is more to buying a car than finding one you’d like to drive. Even price may not be the biggest consideration you will face as you decide which car to buy. It is more complicated than any of that. However, if you know a few best practices, you could enjoy a bargain and protect your financial future.
4 Ways to Save on Your First Car
1. Only Buy What You Need
First, make sure that you only get what you need in a car. Sure, you might love a sweet sound system, lust after convertibles, or prefer the color red, but that doesn’t mean you’ll get it. You need to make sure that what you choose will work for your needs. For instance, if you live somewhere that gets a lot of snow, you may want to make sure your car has four-wheel drive so you can have traction in the middle of winter. Similarly, think about where you live. City streets may be able to handle a low clearance, but people who live down gravel driveways may prefer a car that sits higher off the ground. Different features tend to carry different price tags, so choose wisely.
2. Buying Used
Likewise, forget buying new. You are going to get a much better deal when you buy used. New cars look nice, drive nice, and even smell nice, but they begin to lose value the minute you drive them off the lot — roughly 11%, to be exact. That may not sound like much, but the value of the vehicle will just keep going down from there. Within five years, most cars are only worth 37% of the initial purchase price.
That’s bad news for someone who buys new, but it is great news for you. That five-year-old vehicle is likely to have most of the same technology as a newer car — at over 60% off the ticket price. That is a serious bargain.
The only question is — do you buy your used car from an individual or a dealership?
3. Buying from an Individual
Buying from an individual can mean that you get the car you want at the price you want to spend. Individuals are often more flexible with pricing and more likely to price a car low to sell it quickly. However, you may need to spend a good bit of your free time going to visit and test drive these different sellers. Further, keep in mind that the vehicle comes as-is. If it needs thousands of dollars in repairs to make it road-worthy, the seller is not responsible. You are.
A good practice is to make sure that you get a Carfax report for the car so you will know if it has been involved in any accidents and look up the value of the car on the Kelley Blue Book to make sure the price is fair.
4. Going Through a Dealership
Dealerships are often more expensive, but they make everything simple. Just make sure to go to the right dealership.
"When buying your first car, I would start by asking for referrals from friends and family on their experiences at local dealerships. Who did they have a good experience with, who made it fun, who should you avoid?" says Amanda Roth, Sales Manager at Thomas Subaru in Cumberland, Maryland. "Asking people you trust is a good place to start."
When you buy the vehicle, it comes inspected and registered. The dealership handles everything for you. If you try to cheap out and buy a car from a person instead of a dealership, you may save money on the purchase price, but there are other costs to consider. Taking a used car and making it ready for state inspection could cost you a few thousand dollars and blow your budget.
"Working with a dealership offers many advantages over purchasing a vehicle from an individual," explains Roth.
"First of all, most states will require an inspection before a licensed dealer can sell a vehicle, while a private sale does not have to abide by that rule and the buyer is solely responsible for any inspections."
Roth also says it's also important to ask questions about any certification the dealership might offer on a pre-owned vehicle. "Is the certification from the dealer or from the manufacturer? Will it include a longer warranty with the certification? If so, who would honor it? Does the dealer only honor this warranty or any dealer selling that manufacturer's vehicles? Be sure to get specific information about this," Roth recommends.
Whether you choose to buy from an individual or a dealership, remember that buying a used car is a process. "The most important thing to remember when shopping for a pre-owned vehicle is to have fun!" says Roth. "Don’t get lost in the details and enjoy the experience of test-driving vehicles and finding the one that fits your needs."
3. Smart Financing
Start by talking to the bank that handles your checking or savings account. They already have a relationship with you and may be able to offer you the best terms. Credit unions are also a good place to consult. While you can often obtain financing through the dealership, you may get a better deal by checking around.
If you are financing the car, expect to spend around $25 per month for a 48-month loan and $20 per month for a 60-month loan. To put this in perspective, a $10,000 car will cost around $250 per month when you finance it over four years and $200 per month when you finance it over five years. Those amounts may seem reasonable when you don’t have other recurring payments, but your life won’t always be so simple. Just because you saved so much or were approved for so much financing, that doesn’t mean you should put everything on the car itself. You don’t want to have your entire paycheck eaten up by your auto loan payment. Before you pay off that vehicle, you may have other expenses, like rent, student loans, or health insurance.
4. Understanding the Cost of Ownership
The cost of the car itself is just the tip of the iceberg when it comes to owning a car. You also need to think about car insurance, gas costs, parking fees, and maintenance, like oil changes and fluids. These expenses are generally minimal, but you may need mechanical work from time to time, new tires, fresh brake pads, or any number of things to keep your car on the road and safe.
Luckily, there are plenty of ways to save here, such as getting a discount on your insurance by taking a safe driving class, using an app like Gasbuddy to find the cheapest gas prices, or even subscribing to a car maintenance plan to lower out-of-pocket repair costs.
Putting It All Together
Buying your first car is very exciting, but it can go wrong so easily.
Make sure that the car you pick will work for your needs and that you can afford the vehicle as well as the maintenance it will require. Buying used will help you save money, as will shopping around for the best financing deal, but, at the end of the day, make sure that you understand the true cost of car ownership before you buy your first vehicle.