Car Buying 101: Info For First-Time Car Buyers
Remember back when you first got your driver’s license and there were so many decisions to make? Maybe you had to decide who would drive to which friend’s house, or maybe you had to plan to borrow the family car before you needed it from mom or dad. But now that you’re a young adult, you have a whole new set of challenges and opportunities ahead that mean you need your own vehicle. No more relying on parents or family - it’s time to get your very first car!
Buying your first car can seem complicated, but doing a little homework before you go shopping can help prepare you for everything that’s involved. This article outlines several important considerations for young adults getting ready to buy their first car.
Before You Buy Your First Car
Keep in mind that as a young adult, your life will be changing a lot in the next few years. If you graduate from college soon and plan to get a job immediately, will you have a long or short daily commute? If you’re already in the workforce, do you think you’ll want to start a family soon? Consider how your situation might change in the next three to five years, and try to choose a first car that meets your expected needs.
Instead of having to swap your coupe for an SUV or trade your truck for a more efficient commuter car, anticipating your needs now can help you hold on to your first car longer, which will save you money in the long run. We all know that plans can change quickly, so switching to a different vehicle isn’t the end of the world, but it can cost you more money than keeping the car you already have.
Budgeting For Your First Car
Cars can last a long time, but so can car loans. The average car loan length is now more than 60 months, meaning you’ll make monthly payments for over 5 years! This means it’s important to budget for a monthly payment you’ll be able to afford for the full term of your loan.
If you’re wondering how to reduce your monthly car payment, the simplest way is to choose a cheaper car. Another way to lower your monthly payment is to put more money down on the loan. When you put money down, you’re paying for some of the car up front at the time you buy it. Paying more now means there will be less to pay later! You can also consider a longer loan term to lower your payment, for example, a 72-month loan instead of a 60-month loan, but keep in mind that interest rates will be higher for longer terms and you’ll be paying that rate or longer.
Budgeting For Everything Else
When it comes to buying your first car, budgeting for the car itself can be the easiest part. You might think you’re ready to buy once you get this far, but put the brakes on any car buying until you’ve had a chance to consider the added costs of everything else – auto insurance, maintenance items, registration, and even the fuel you’ll need to buy.
Let’s cover insurance first. Most brand new drivers are covered by their mom or dad’s insurance, but now that you’re getting your first car you might want your own auto policy. Discuss auto insurance with a parent and decide how you’ll handle it, because car insurance rates for young adult drivers are often quite high. Auto insurance is required by law in almost every state. Also keep in mind that if you use a car loan to purchase a vehicle, the lender will require a minimum amount of car insurance to protect the value of the car in case of an accident.
For your first car, be sure to review how car insurance works and know what types of coverage you have. Also make sure you can afford the out-of-pocket deductible costs in case the worst happens, either using your emergency money or another source of funds. Remember that as you gain more driving experience and become older your auto insurances rates will likely decrease a little, but if you do get in an accident, your car insurance rates might increase.
There can also be dramatic differences in insurance costs between different makes and models of vehicles. From insurance’s point of view, luxury brands have higher theft rates, powerful sports cars are more likely to speed, and full-size SUVs and trucks cost more to repair, so their rates are higher. A simple commuter car is probably going to be more affordable to insure. And an older, cheaper car will have lower insurance costs than a new, more expensive car. Many insurance companies are happy to give you a quote on a car that you’re considering buying even if you don’t own it yet, so get the actual insurance costs for your first car before you buy.
Next, you’ll need to consider maintenance. Budgeting for auto maintenance means spreading the cost of wear and tear items over their expected lifespan. For example, engine oil and wiper blades are usually replaced at least once a year, depending on how much you’ll be driving, so spread those costs over 12 months. Tires often last for several years or tens of thousands of miles, but they’re hundreds of dollars to replace. If you buy a used car without a lot of tire tread left, new tires can be a hefty expense you’ll need to consider. You can estimate yearly maintenance costs for a vehicle you’re considering using a variety of online resources. You’ll also want to think about repairs, and keep some cash accessible in an emergency fund or have another source of money in case you have a breakdown.
Registration is a yearly expense that you’ll also need to take into account. Divide it by 12 and add it to your monthly payments list.
Lastly, consider how much you’ll spend on gas each month. If you know about how many miles you’ll be driving each year or each month, this is an easy calculation based on the miles per gallon (mpg) of the vehicle you pick. For example, if you drive 7,500 miles per year, that means you put on 625 miles per month. If your car gets 24 mpg, you’ll use 26 gallons of gas to go 625 miles. Gas prices change often, but if you estimate $2.50 per gallon, you’ll be spending $65 each month on fuel. Depending on your situation and your car, you may drive much less or get better mpg, so do this calculation with your real numbers to budget for fuel.
Adding It All Up
The bottom line when it comes to budgeting for buying your first car is that there’s a lot to consider. Balancing your loan length, down payment amount, and interest rate with insurance, maintenance, and fuel costs requires careful calculation. You should also try to keep overall monthly costs affordable in case you face financial stress in the future.
Making The Purchase
Now that you know your monthly budget, you’re ready to make the purchase! You have a few different options. You can go to a dealership, pick out a car, and have the dealership finance department find a loan for you. Or you can start at Royal Credit Union by filling out an auto loan application and getting preapproved before you head to the dealer. The advantage of getting preapproved is that you’ll save time waiting for the dealer financing department and avoid any potential surprises due to your credit score. Either way, you’ll sign papers to finalize your loan and leave with your new car. After you get home, you’ll be able to finalize your auto insurance policy, set up your car loan payments, and get your official registration and license plates from your state transport agency.
For many young adults, buying a car is your first “real-world” financial experience, so don’t worry if you need to ask a trusted source for more help. Royal Credit Union offers all our Members free financial reviews and financial counseling, and we would love to help make your first car-buying experience a positive one. If you’re ready to buy a car, take the first step by getting preapproved online and save time at the dealership. Start your auto loan application online today!