5 Tips for Purchasing Your First Car
Purchasing your first vehicle can be a very exciting but also an overwhelming experience; there are many options to choose from and the financial obligation can become quite daunting. Here are five tips to help you through the experience:
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Determine your budget. As a part of the 50/20/30 budgeting rule, transportation falls into the 50%, or “needs” category. Calculate a realistic amount for your monthly car payment plus estimated maintenance, fuel, insurance, and taxes, all of which stay within your 50% (needs) allocation. Make sure to consider your initial downpayment on the vehicle as well. A general rule of thumb is to put down approximately 20% of the vehicle sales price. However, if you need to decrease your monthly payments to stay within 50% of your income, you may want to consider putting down more than 20%. Always be conservative with your estimates and anticipate unexpected expenses in the future.
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Check Your Credit Score. Your credit score tells lenders about the likelihood that you’ll make your payments on time, so a better credit score can result in lower interest rates and/or better loan terms. Check your credit score at least a year or two before you go car shopping and do everything you can to improve your score prior to heading to the dealership.
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Secure your financing. If you don’t have enough cash to pay for the car in full, you’ll need to borrow money to purchase the vehicle. Most people choose to finance through the car dealership due to convenience. However, it’s good to do your research and check other financing options before purchasing your car. Other options for financing your vehicle can include:
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banks
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credit unions
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online lenders
Another factor to consider is having a cosigner for your loan. If your cosigner has a good credit score, this may result in lower interest rates and consequently lower car payments for the life of the loan. Finally, ask your lender about longer loan terms if you need to reduce your monthly payments. Most car loans are over 60 months, but your lender may allow for 72-month car loans which would result in lower monthly payments at the same interest rate.
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Research vehicles: Do your due diligence and research your car options thoroughly. Read reviews, talk to others, and test drive multiple vehicles before making your final decision. If you’re working with a tight budget, you may want to choose a car that is practical and reliable to save you time and money (and a headache!) in the future. Keep an eye out for recalls and be mindful of fuel efficiency. Consider used vehicles that include a warranty and that have undergone inspections as they can be a great lower-cost alternative.
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Negotiate: Be prepared to negotiate. When you walk into a dealership, be willing to walk away that day if you can’t come to terms that you are comfortable with. Don’t be willing to compromise the budget that you established prior to the negotiation. Knowledge is your greatest power when negotiating, so do your research and have an exact budget in mind before setting foot in a dealership.
Ultimately, remember that your transportation is part of your “needs” and not your “wants.” Vehicles are a tool to get you to where you need to go. Until you can afford to pay cash for a car, it’s good to have this mindset when making this large purchase. Happy hunting!