Buying your first car: A guide

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In a Nutshell

Buying your first car can be a great investment that makes getting to work, visiting friends and seeing the world easier. But it’s also a major financial decision. Make sure you think through the process so you don’t regret your decision later.

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Ready to take the leap to car ownership?

Buying your first car can be exciting, but it’s also a significant investment. The average price for vehicles in the U.S. was $37,577 in December 2018, according to Kelley Blue Book.

Before rushing to make such a major purchase, consider what type of car fits your needs along with your budget and financing options.


How do I go about buying my first car?

You might get lucky with a friend or relative offering you a great deal on their gently used car. If it’s the right car for you, it’s probably a good idea to snatch it up. Otherwise, you might want to take a more thorough approach to car-buying.

1. Determine your budget. Figure out how much you can afford to spend on your first car by calculating the initial cost plus the monthly expenses associated with owning a car.

2. Decide on new versus used. Even if your budget is big enough to cover the cost of a new car, there are pros and cons to consider.

3. Start shopping. Comparison shop, take test drives and negotiate your car’s price.

4. Secure financing. If you don’t have the cash saved up, you’ll likely need to get an auto loan to buy your car.

How much should I save for my first car?

The monthly payment on an auto loan is just one of a handful of expenses you’ll need to cover as a car owner. Before making the purchase, consider the following in estimating your total monthly cost.

  • Loan payments — You may be able to get an estimate for your monthly car payment from loan providers or with a free online car payment calculator.
  • Insurance — Insurance providers can quote you a rate based on your information and the type of vehicle you’re considering. A new, sporty car may be more expensive to insure than an old sedan. Look for potential ways to save money, like asking for a discount when you install an alarm system or steering-wheel lock.
  • Gas — Calculate the miles you’ll typically drive for your work commute, and add additional miles for trips to the store, friend’s houses and weekend getaways. Consider the current price of gas and the vehicle’s fuel efficiency to estimate your monthly fuel cost.
  • Maintenance — New tires, windshield wipers and oil changes all come with a price and are essential to maintaining your new car and making sure it’s safe to drive.
  • Repairs — It may make sense to put money aside each month to help pay for unexpected deductibles, or for the entire cost of repairs if you don’t have a warranty.
  • Additional expenses — Remember to factor in less-frequent expenses, such as your annual registration fee (divide the fee by 12 to calculate your monthly cost) or a parking pass, if you’ll need one.

You can use several tools to help estimate the long-term cost of the purchase. Edmunds.com’s True Cost to Own® pricing system works with 2013 models and later, and Kelley Blue Book’s 5-Year Cost to Own tool works with 2019 and 2020 models. Both estimate the total cost of ownership after the purchase is made, plus depreciation. Using a tool like this can help you determine whether a particular vehicle really is within your price range.

Think carefully before stretching beyond the bounds of your budget. In a worst-case scenario, if you fall behind on monthly payments, the lender may repossess your vehicle. Not only will you be car-less, but the late payments and repossession could also significantly hurt your credit.

Is it better to buy a new or used car?

Buying a new car

There are several benefits to buying a brand-new vehicle. You may be able to order a particular color, trim package or set of extras, and you’ll know the car has never been in an accident or mishandled by a previous owner.

You may also be able to get the latest technological features, and newer vehicles may be safer and more fuel-efficient than previous models.

But new cars can be expensive compared to their used counterparts. You may be able to negotiate the purchase price by getting quotes from several nearby dealerships and going back and forth asking the dealers to beat the current best offer, but the process can be lengthy.

If you prefer not to negotiate, you may be able to get prearranged prices on new vehicles with an auto-buying program, such as the Costco Auto Program.

If you’re a recent college graduate planning to buy a new or newer car, you could look for dealerships or auto manufacturers that offer special financing programs for graduates and see if you qualify.

For example, the Nissan College Grad Program is available to qualifying students who graduated within the last two years, will graduate in the next six months or are currently enrolled in a graduate program. could give you up to $500 cash back (which you can combine with other offers) on select models. BMW’s college graduate program has slightly different eligibility requirements. But with BMW, you can potentially save $1,000 on a new or certified pre-owned car.

Buying a used car

Buying a used car could make more sense if you’re looking for savings or can’t afford a new car.

Cars often depreciate, or lose value, the most during their first few years. By buying a used car, even one that’s only a couple of years old, you can save a lot of money while still getting a lot of the latest bells and whistles. And if you buy the car from a private seller, you could save even more.

To decrease your chance of purchasing a car that was in a major accident or will need expensive repairs soon, consider paying for a vehicle history report and having a mechanic do an inspection of the vehicle before you buy it.

If there’s a minor problem, like unbalanced tires or worn-down brakes, you may be able to ask the seller for a lower price and use the savings to pay for repairs. But if there’s a major problem such as a failing transmission, you may want to walk away from the deal.

Should I buy a new or used car?

Financing your car purchase

Unless you’re able to pay for a car in full, you may need to take out an auto loan to finance the purchase. You can shop for a loan at banks, credit unions, dealers and online lenders to try and find the best rate.

The best place to get a car loan

Applying for multiple auto loans in a short period of time can be counted as one hard inquiry for credit-scoring purposes. But in general, multiple hard inquiries within a range of 14 to 45 days, depending on the scoring model, can have a bigger negative impact on your credit. So it’s best to have everything in order before sending out applications and comparing your offers.

The loan’s terms and your approval may depend on a number of factors, including your credit history, income, debt-to-income ratio and the stability of your job.

If you have little or no credit history, and you’re unable to get approved — or want better terms — you could ask someone, like a parent who has established credit and is in a more stable financial situation, to co-sign the loan.

You might also focus on lenders that consider people with lower credit scores, but you could end up with a higher interest rate.

Making a down payment might also help you get approved for a loan by reducing your loan-to-value ratio — a factor that lenders consider.

If none of these options work for you, you might want to wait to buy a vehicle until you’ve built your credit and can qualify for a good rate on your own.


What’s next?

Once you finalize the purchase and get car insurance, you’re ready to drive off in your new car. But you’ll still need to register your car before you receive your license plate, registration card and sticker (if your state uses stickers).

Car dealerships might take care of most of the paperwork initially, but remember that you’ll have to pay for registration again when you renew.

If you bought a used car from a private seller, you’ll likely have to handle the process on your own. Visit your state’s Department of Motor Vehicles or transportation agency website to learn more about the requirements in your area.