Buying a new or used vehicle is often one of the more important purchases you'll make, but it doesn't have to be stressful if you make informed decisions.
Preparation is the best way to get informed so here are the factors that a first-time car buyer should consider to avoid buyer's remorse.
What's Your Budget?
A realistic answer is important in this case. Most experts agree that you should never buy a car that costs more than 15 percent of your monthly pay. If you want to be more detailed, calculate these factors:
-Mortgage or rent
-Average monthly grocery amount
-The cost to insure, fuel, maintain the vehicle -- especially if you haven't bought a vehicle in a while
Next, after figuring in your savings, subtract these expenses from your monthly income (take home only) to determine how much your car payment can be a month. It's important to also add in the fuel expenses, insurance rates, and the average cost of regular maintenance and repair for your potential purchase.
What Do You Need?
Once the numbers are in place, now its time to determine what you specifically need in a car.
Ask yourself how you'll use the vehicle. The key is to be realistic; maybe you think you need all-wheel-drive in case you take the car on a ski trip, but is that something that you do often enough where it should dictate your entire purchase? One ski trip in six years of owning the car doesn't make the added cost of AWD and the extra fuel you'll use over those six years.
Consider the size of the vehicle. More room inside is nice for you, your passengers, pets and cargo. But larger vehicles cost more, use more gas and are harder to park.
Also, ask yourself what features are important to you. This is an expensive purchase that you'll likely own for years, so you want to make sure you don't short-change yourself and skip an amenity or element (style, color, brand) of the vehicle to save a little money, only to end up with a vehicle for years that you don't love.
Should I Buy a New or Used Car?
New cars come with both a warranty and that new car smell. Although new cars depreciate dramatically in its first years, these cars typically will not need many repairs in the beginning.
New cars are typically the most advanced in important areas such as fuel economy and safety technologies. Finally, new cars are also often financed with a lower interest rate to save on the overall loan.
The main advantage of a used car is that they often have lower monthly payments and an overall lower cost than a new car. Used cars allow you to bypass the depreciation stage, so you stand a better chance of recouping more of your money when it's time to sell.
Insurance rates are also typically lower on a used car (since they cost less), which saves you even more money overall. The obvious downside of insuring a used car is that because they're older and have more miles on them, it's more likely they'll need repairs and it will be more important to stay on top of regular maintenance.
Certified Pre-Owned cars can split the difference; they've been thoroughly inspected for quality, but they're still used. Just remember CPO vehicles do cost more than their non-CPO counterparts.
Is the Price Right?
Researching the typical purchasing price is an important step; you don't want to find out you could have paid less after you've bought the car. Kelly Blue Book, TrueCar and J.D. Power/NADA Guides can all give you an unbiased look at vehicle pricing in your area.
Does This Car Feel Right?
After researching the vehicle and reading reviews -- both by consumer magazines and websites as well as consumer reviews -- a test drive is a crucial component of the decision-making process.
A car that sounds perfect on paper may have a seat that simply does not feel comfortable to you or an infotainment screen that's too confusing.
Drive a prospective car for at least thirty minutes in various environments -- in traffic, on the highway, around town. Parallel park it and maneuver around tight parking lots to see if you could live with it on a daily basis.
And be sure to familiarize yourself with the entire dashboard and instrument panel -- particularly the infotainment screen. The electronics in new vehicles are becoming increasingly complicated and many consumers are buying a new vehicle, only to find out they hate the way a tech-based feature works that they didn't test before buying.
Ways To Pay For Your Car
For most people, there are three ways to pay for a car: cash, lease or financing.
Paying with cash has the advantage of not having to pay or think about monthly interest or obtaining a car loan. This is a difficult goal for most consumers since few people have access to large amounts of cash needed to buy a vehicle.
If you do, it could still be a good idea to check out financing if the interest rate is low (0.9 percent or even zero) that it may make more sense to take the borrowed money and invest the cash you have. It should also be noted that such a favorable rate is sometimes only possible with an outstanding credit score.
When choosing to finance, note that virtually anyone can get financed for a car, but the interest rates can be extremely high if you have poor credit. If this is the case, look for lenders that reach out to first-time car buyers as well as those who seek to provide forgivable rates to those with shaky or no credit history at all.
If you decide to finance a car with a dealership, it's important to know your credit score before you visit, and consider if you should include gap insurance through the dealer, with your insurance agent or not at all. It is almost never a good idea, however, to include fees such as registration, extended warranties and sales into your financing-- those fees will multiply at an astonishing speed due to the overall interest rate.
If you find that the vehicle you want is more expensive than you can afford when buying it or it requires a longer loan than you're comfortable with, consider leasing. This gets you more car for your monthly payment, and most leases are 24 to 36 months long, so you’re not stuck with a car for a long period.
This is also useful if you expect your vehicle needs to change in a short period of time (two to four years). Perhaps you’ll be moving to another town, or you plan to have kids, or your kids will be moving out.
The downside to leasing is that you don’t build equity in the vehicle as you would if you had bought it. It’s the same as renting a house versus buying a house; every rent check you write you will never see again.
Leases also limit the number of miles you can drive annually and charge you for every mile you’re over the limit (though you can negotiate this at the beginning of the lease if you’re sure you’ll go over.
Once you're ready to negotiate:
Now that you're prepared, it's time to make your purchase. Here are a few tips for when you're at the dealership:
Question All Charges
Processing and convenience fees should be questioned; they may not be necessary, or they can be used in your negotiation of the final price. Ask for detailed information about the benefits of the GAP insurance and service contracts that are being offered to determine if it is a necessity.
The Negotiation Process
This can be the most intimidating part for a first-time car buyer (or even an experienced buyer), but it's the most important. It helps to know, however, that the power is essentially in your hands at this time. The salesman wants to sell you a car, and he loses if you walk away.
Preparing for Negotiation
Inquire about the same car, with the same options and fees included, with other dealerships before you go into your local store. Try to get them to match competing offers if they're lower.
Ignore the Sticker
Start with the dealer's invoice instead of the MSRP, but don't stop there. Dealers can typically go even lower without losing money because they're often paid bonuses and incentive by the automaker that don't show up on the invoice.
Don't Show Your Hand
Focus on the price of the car instead of the most you can pay a month. Once your monthly payment limit is disclosed, a dealer can very well match that but make up their difference by adjusting loan lengths or interest rates so that you ultimately end up paying more than you should.
Once you tell them how much you want to pay, be firm and don't let them pressure you to change your mind. And remember— you don't have to give any personal information like your Social Security Number while settling on the price.
Negotiation does not have to be a battleground; both you and the dealer can get a fair deal in car sales. Most dealers won't be able to sell a car at a lowball price; they need to run a profitable business too.
Also, certain fees such as delivery fees, sales taxes, and licensing fees are unavoidable, so don't get suspicious when it's mentioned.
Leave or Put it in Writing
Don't be afraid to leave if the dealer isn't able to provide you with the offer that you think is fair. You may find that they'll contact you in a few days willing to sign the deal you wanted. Once you do agree on a price that you're happy with, get it in writing. Include specifics about the make, model, year, trim level, color and VIN so there is no confusion or discrepancies later.
Seal the Deal
Ask the dealer to email you all of the paperwork ( pricing offer, warranty, financing, etc.) and look it over one last time away from the dealership. Once everything matches up, you can feel secure in signing the final paperwork with a car-buying victory under your belt!