What to know when making your first car purchase

When you buy a car for the first time, you’re making a big financial commitment — possibly even your first one. Not only is the total cost of the vehicle large (thousands or tens of thousands of dollars), but you’ll likely have to plan years in advance to ensure your new vehicle will remain within your budget. Not to worry, though — we’ve got you covered with a list of things to know before you buy your first car.

First step: Make sure your finances are in order

Before you start shopping for vehicles, you must fully understand your financial picture. Ask yourself these questions:

• Do I already have a budget in place that accounts for my income and expenses? And if so, can that budget sustain the expenses associated with a car, such as a down payment, insurance, registration fees, monthly payments, etc.? (We’ll talk more in-depth about all the fees you’ll need to consider in a bit.)
• Are all my debts paid off? If not, have they already been worked into my budget as fixed expenses and are they being paid down?
• Do I have a savings/emergency fund started?
• Do I have good credit established? (You can check your credit report here for free once per year.)

If the answer to any of these questions is “no,” it may be difficult to purchase a vehicle and budget for it effectively. Once your answer is “yes” to all of them, then congratulations! You’re ready to begin your search for the perfect car.

Where do I even start looking for a car?

Online marketplaces such as cars.com can be great sources for finding vehicles in your area. Alternatively, you can shop for a car at a dealership near you. Each option has its advantages — it’s easier to compare online, and you’ll get a wider range of options. If you already have an idea of what you want, these marketplaces can help you zero in on a car that perfectly matches your preferences. However, if you don’t know what you want and you’re just looking to browse, going to a dealership may be a better option. Dealerships offer a personal touch to your purchasing experience, allowing you to see the vehicle in person, talk to a dealer about it (and maybe even test drive it), and negotiate prices in real time. No matter if you’re shopping online or in person, make sure to watch out for scams and bad deals. If the price seems too good to be true, it probably is — take a thorough look at the car’s history and the dealer’s reputation before considering any further.

When you start looking for a car, make a list of all your preferred features and factors, listed in order of importance. The top of your list may include luxuries like heated seats/steering wheel, remote start, and Apple CarPlay®/Android Auto™ compatibility, or very practical matters such as mileage, fuel efficiency, and seating capacity. Either way, once you find some vehicles you like, use your list to compare them — determining not only how many boxes are checked, but the importance of each box as well.

Should I buy new or used?

Just like looking for cars online versus looking at a dealership, there are advantages to both when it comes to buying new versus buying used. New vehicles boast the latest features and technology, start out with zero miles, and are likely to carry better interest rates. However, new cars also carry higher prices, rates of depreciation, and insurance costs.

Meanwhile, used vehicles are generally cheaper, carry lower insurance costs, and depreciate slower. But used cars may not have been cared for well by their previous owner(s), leading to issues you’ll have to fix down the road. You may also have to compromise on color, make, model, add-ons, etc., depending on what’s currently available for sale near you. Click here for tips on buying a pre-owned car, and make sure to use our handy downloadable pre-owned car checklist.

Financing vs. leasing

Once you find a vehicle that could be “the one,” you’ll have to make sure you can pay for it. And unless you plan on paying for it in full right away, you’ll need to decide whether to finance the vehicle or lease it.

Financing a vehicle involves obtaining a car loan through your bank or the dealership. You’ll pay a down payment up front, which is often 10%-20% of the purchase price. The more money you’re able to put down, the better. Higher down payments can decrease your monthly payments and interest rates, meaning you pay less in the long run. The loan you receive will have a fixed payment amount, paid monthly, for a set number of months. Once you have made the required payments and your loan is paid off, you own the car fully and can choose what you want to do with it. Click here for information about getting an auto loan from UBT.

Leasing a vehicle typically offers lower monthly payments in fixed amounts, potentially making it a cheaper option. However, you’re only renting the vehicle, not owning it — once the set number of months is reached, you’ll have to return the vehicle. There may also be further restrictions such as mileage and customization limits.

Other costs to consider

Once you know your monthly payment amount and interest rate, there are still a few one-time expenses you’ll need to budget for. The big one is sales tax — often a combination of rates between your state, your city/county, and sometimes special district taxes. The total tax you pay is based on the vehicle's value — for example, if you purchased a $20,000 vehicle, and the sales tax was 5.5%, you would pay $1,100 in taxes. Other costs may include registration fees, title fees, and other miscellaneous fees that vary from state to state. It's always a good idea to research what fees are mandatory in your specific area ahead of time.

How can I make sure I’m not getting ripped off?

Every vehicle has an MSRP (Manufacturer Suggested Retail Price), which is the price that the vehicle is recommended to be sold for new. However, this doesn’t account for wear and tear, mileage, or depreciation on used vehicles. Resources like Kelley Blue Book are a great place to find a fair purchase price to go off that includes the vehicle’s age and mileage.

Before signing

Before making any final decisions, make sure you’ve checked each item on the checklist below.

• Search for buyer reviews, common safety/repair issues, and recall information for the vehicle.
• Use the VIN (vehicle identification number) to look up the vehicle's history on websites like CarFax or Experian AutoCheck, ensuring there’s nothing worrisome like accidents or lack of service.
• Ensure you know what your monthly payments and interest rates will be, how many months of payment you’re signing up for, and any additional costs in purchasing the vehicle. Once you know these details, make sure your budget will be able to cover all expenses.
• Know what is covered under the car’s warranty, which commonly offers protection up to a certain date or amount of miles (whichever is reached first).
• Ask the seller or dealer questions such as:
  • Why are you selling the vehicle?
  • Has this vehicle been involved in an accident, and does it have a salvage title?
  • How many previous owners have there been?
  • Can I see the maintenance records of the vehicle?

Once you have all information at your disposal, you’ll be equipped to make an informed decision on your car purchase. For even more tips specifically regarding the purchase of pre-owned vehicles, check out our handy guide here.