Buying Your First Car
You’re finally ready to buy your first car, and we’re here with all the information you’ll need to empower you to make the best decision for your future. Just a little preparation can go a long way toward ensuring that your first car buying experience goes smoothly.
Start with your priorities.
Before you choose a car, you’ll need to spend some time reflecting on your goals, which will lead you to a consideration of your values. It will likely be in your best interest for this car to last you for several years. What is going to be most important to you about the car that you drive over the next few years? Is affordability your priority, or are you prioritizing environmental concerns? Ask yourself the following questions to really get to the heart of what matters:
- Will you have a long commute to work?
- How large a vehicle capacity do you need?
- How might your situation change in the next few years?
- Is the make/model of the car important to you?
- How much does appearance (like color or style) matter to you?
Once you have a clear understanding of what will be important in your car buying decision, you’re ready to calculate your car buying budget. This will help you avoid costly compromises down the road. In summary, make sure you:
- Know your priorities
- Set your budget
- Research total cost
- Inspect before buying
How much car can you afford?
If you have been saving up to pay cash for your first car, you may not have thought about a monthly budget beyond the price of the car. Even if you are planning to finance your car purchase, you’ll want to consider the following added expenses on top of your monthly car payment:
- Fuel
- Insurance
- Registration
- Regular maintenance
Your budget isn’t just about what you can afford to buy. It’s about what you can afford to maintain. In addition to your monthly costs, don’t forget upfront expenses like sales tax, title and registration fees, and your down payment if you are financing.
If you plan to take a loan for this purchase, your credit score – or the credit score of a co-signer – can impact your interest rate and how much you pay overall. Read about credit scores and how they’re calculated here.
Fuel
One of the biggest considerations when car shopping is the gas mileage. How many miles can this car go per gallon of gasoline? The higher the gas mileage, the better! You’ll want to calculate an approximate amount you’ll spend on gas each month. If you know about how many miles you’ll drive each month, you can calculate the amount based on the miles per gallon (mpg) of the vehicle you’re considering.
For example, if you drive 15,000 miles per year, that will be 1,250 miles per month. If your car gets 24 mpg, you’ll use 52 gallons of gas per month. Gas prices fluctuate, but if you calculate $3.00 per gallon, you’ll spend $156 per month on fuel.
Insurance
You’ll need to shop around to discover the best insurance rates, because car insurance rates are often high for young drivers. Auto insurance is required by law in all states but two (NH and VA), and if you finance your car purchase, your financial institution will also require you to carry car insurance to protect the value of the car in case you’re in an accident.
Car insurance premiums are the amount you’ll pay each month to maintain your insurance. Car insurance deductibles are the amount you have to pay out-of-pocket in order to file a claim. It’s a good idea to set aside the amount of the deductible in an emergency savings account, just in case you need to file a claim. Make sure you are aware of any deductible amounts you’ve agreed to in your insurance policy.
Insurance rates are often higher for younger or newer drivers. Your vehicle make and model can also impact premium rates. As drivers grow older, their premiums reduce (as long as they remain accident and ticket-free!).
Registration
Car owners often forget to add their annual registration fee to their car expense calculations. This amount changes year to year, and you’ll want to take the total amount and divide by twelve in order to estimate how much you need to set aside in your car budget each month.
Maintenance Costs
It’s critical that you set aside funds for car maintenance in your total expense calculations. Depending on how many miles you drive per year, you may need to replace your tires every few years. You’ll need regular oil changes, and regular wiper blade replacement. You’ll also need to plan for additional periodic maintenance. It can be easy to forget this step, but setting aside money for maintenance will give you the peace of mind of knowing that you have planned for anything!
Pro tip! Having an emergency fund can help you manage unexpected repairs or changes in your income.
Decision Day
Car shopping is exciting, and this is where your preparation really pays off. In the past, the thrill of making this purchase could have clouded your judgment, but now you’re ready for your values and goals to inform your car purchase decision.
Just because the car looks cool, doesn’t mean it is cool! You’ll want to ensure that you’re getting the absolute best deal for your dollar. Use a car valuation calculator to check that you’re getting a good deal. Look up the vehicle’s Carfax to make sure there aren’t hidden accidents. Research insurance rates for this make and model.
Before you buy, don’t be afraid to ask questions or negotiate, especially if your research shows you the asking price may be high. Take the car for a test drive and consider having a trusted mechanic inspect it. Finally, make sure that the car checks all the boxes for your priorities.
If you decide that you want to finance your first car, you can submit an online application here. Additionally, if you purchase from a car dealership, you can ask them to submit the loan application to Meritrust.
The average car loan is more than 60 months, which means if you use a loan to purchase your car, you could be making payments for five years or more. Make sure this car is going to meet your needs for the duration of the loan.
Where to start
At Meritrust, we strive to provide financial education resources for each moment on your money journey. If you’d like help talking through your money values, setting up a realistic budget, or planning for a car purchase, reach out to a member of our Financial Well-Being team today! We are here to help every step of the way.
