The Basics of Buying a CarOctober 15, 2016
Updated: February 4, 2022
Aside from mortgage or rent, a car payment may be your next-largest monthly expense. Whether this is your first or fifth car purchase, shopping for a car and determining how to finance it can be overwhelming. Follow these steps to ensure that you are getting the best deal when it comes to vehicles:
Determine What You Can Afford
When taking any large financial step, such as buying a car, the first stage of the process is to consider your finances and calculate a practical amount to spend on a monthly car payment. Generally, experts recommend that you should spend no more than 15 to 20 percent of your total budget on all automobile expenses (including car payment, car insurance, gas, and regular maintenance).
One factor that is important to take into consideration is that the sticker price of a car is not all you will be expected to pay — you must also account for sales tax, title and registration fees, extended warranties, and any other fee you may incur. Edmunds.com’s affordability calculator is a great resource for determining how much you can afford — it even has a section to enter your zip code to find the rates and pricing in your area.
If you plan to finance some or all of your vehicle purchase, you may be able to take advantage of savings before stepping foot in a dealership by getting approved for a low-interest rate with a local bank or credit union.
First-time car buyers may unknowingly offset any savings gained during the negotiating process by agreeing to an unnecessarily high-interest rate on a loan in the dealership’s finance office. Since interest rates affect both the amount you pay each month and the total cost of your loan, comparing interest rates on new or used car loans in advance can result in legitimate savings in your budget.
Once you have calculated what you can afford to spend on a car, you want to make sure that you get the most car for your money. Make a list of factors that are important to you like fuel efficiency, mileage, year, make/model, size, etc. — and start shopping.
Websites like AutoTrader.com offer customizable online car shopping based on your budget and important factors. Shopping online may be a better way to look for cars instead of bouncing around from dealership to dealership. It can save time, and if you are shopping on a tight budget, you will not be tempted by the more expensive vehicles on the car lot.
Some financial experts state that buying a new car (especially using credit) is a terrible investment. This is due to the notion that a brand new car is worth an estimated 30 percent less the second after you drive it off the lot. However, if it is a car you plan to drive for as long as possible, this may not bother you. Plus, you may find solace in the idea that no one else has driven your new car and no hidden issues exist.
While there are many pros and cons of choosing a used car versus a new one, it is important to note that a used car will typically save you money and help you get the most out of your allocated car budget. However, keep in mind that used cars usually carry higher interest rates, depending on your credit score. Check out this post to learn how to build or raise your credit score, which may help you get a lower interest rate.
Negotiate a Deal
What many car buyers, especially first-time buyers, do not know is that it is possible to lower the price of a car by negotiating. Once you have found a few cars within your price range, do some research on what the cars are actually worth.
For new cars, look to Edmunds.com, and for used cars, try KBB.com to determine the market value of the cars you are interested in. From there, set a price to negotiate for — try asking for $500 to $1000 less than market value for new cars or 5 percent less for a used car.
According to Jason Lancaster, a former car salesman/manager, there is one fundamental tactic when negotiating: stay firm with your price and politely decline counteroffers. If they do not initially accept your offer, leave your phone number with them. They will call you back if they decide your price is feasible for them to sell you the car. If you want to call back and follow up on your offer, the most opportune times are the end of the month and the end of the day on Saturdays and Sundays. At these times, managers and salespeople are under more pressure to sell and may be more likely to accept your offer.
Get the Most for Your Money
Above all, your number one priority is to stay within your budget and purchase a car at a price you can afford (if you like — or love — the car, even better. Just make sure it is safe and can get you where you need to be.)
To stay within your budget, you need to calculate a price and stick to it, take the time to shop around, and negotiate a deal with your salesperson. Who knows — you may be able to purchase a car for less than what you have budgeted and have more money left over to save.
Learn More: Should You Lease or Finance a Car