- Learn how to set a realistic budget before buying your first car, including up-front and ongoing ownership costs.
- Compare common first-time buyer options like new vs. used vehicles, leasing and fuel-efficient models.
- Understand what to look for when financing, shopping and negotiating so you can make a confident decision.
- Get answers to common questions first-time car buyers ask before visiting a dealership.
Guide for the First-Time Car Buyer
Buying your first car can be a great investment that makes getting to work, visiting friends and seeing the world easier. It’s also a major financial decision, particularly with prices today ranging from almost $27,000 for a compact car to more than $74,000 for a luxury vehicle.
Key Takeaways
Your first step in purchasing your first car is figuring out what type of vehicle works best for you, how much car you can afford and how you’ll pay for it. Let these tips on car buying guide you to getting what you really want out of your first car purchase. If you’re buying a car for the first time, starting with a clear budget and a short list of must-haves can make the process feel much more manageable.
How much money should you have before buying your first car, and is it important?
The car you buy will depend on your budget. Before you get caught up in the buying frenzy, it’s important to know how much money you make, what your bills are and what’s left over. In addition to transportation costs, you must account for housing, food, utilities, renters or homeowners insurance, health insurance, savings and fun. If you recently graduated from college, you may need to include monthly student loan payments, as well.
A good thing to keep in mind is that the sticker price is just the beginning. You’ll also pay sales tax and registration, title and dealer fees. Focus on the total price to avoid going over your budget.
There are also the ongoing costs of fuel, insurance, maintenance and repairs, parking and a lot more that add up over time.
Financial experts generally recommend that you spend no more than 10% to 15% of your monthly net income on your car payment. Combined with insurance, maintenance and gas, your total monthly car expenses should be no more than 20% of your monthly earnings.
Once you estimate your cost of living, use a car affordability calculator to find a loan payment that fits your budget and check the prices of cars you can afford. Then start putting money aside each payday. The more you can pay up front in cash for that first car, the smaller your monthly payments will be.
| Costs to plan for | Examples | Why it matters for a first-time buyer |
|---|---|---|
| Up-front costs | Down payment, taxes, title, registration and dealer fees | These one-time expenses affect how much cash you need before you buy. |
| Monthly costs | Loan payment, gas, parking and insurance | These determine whether the car still fits your budget after you drive it home. |
| Ownership costs | Maintenance, repairs and replacement tires | These variable costs can add up quickly, especially on older vehicles. |
How to buy your first car: Before you shop, decide on a monthly cost you can comfortably afford — then leave room in your budget for insurance, maintenance and surprise repairs.
Related reading: “How Much Car Insurance Do I Need?”
How to buy your first car to fit your budget and lifestyle
Now that you know how much you can spend on your first car, it’s time to find what to buy based on your needs, budget and lifestyle. Sites like Kelley Blue Book, Autotrader, and Edmunds are a good place to start.
In deciding the type of car you want, ask yourself these questions:
• Should you buy new or used, or lease rather than own?
• Will you travel long distances or generally stay close to home?
• Will you be more comfortable driving something small or large?
• What’s your parking situation?
• Will you need room to haul things?
Buying a used car may be a good choice if you’re trying to save money when purchasing your first car. However, a used car may need maintenance or tune-ups sooner than a new car would, which would be another expense to factor into your budget. With a new car, factory warranties can cover some repairs and routine maintenance for the first years you own it.
If you’re thinking about leasing rather than buying, it’s really important to know how many miles you’re allowed to drive, the interest rate, maintenance requirements, penalties for getting out of the contract early and other conditions of the lease.
As a first-time car buyer, remember to take fuel economy into account, because you’ll spend more on gas for an SUV or truck, for example, than a compact car. Maybe you want something that’s eco-friendly. While an electric vehicle comes with lower fuel costs, you may pay more for it up front. FuelEconomy.gov can help you choose a fuel-efficient vehicle that meets your needs.
The make and model you choose will also impact the cost of insuring it. Its value, repair costs and theft risk are just a few factors insurance companies use to determine rates. You can get a general idea of auto insurance costs with MoneyGeek’s car insurance calculator. If you have a particular vehicle in mind, one of our experienced insurance representatives can help you understand what it will cost to protect it. They can also explain discounts you may be eligible for.
You’ve found the car you want, and decided whether to buy new or used, or lease. As a last step before you head to a dealership, calculate the total cost of owning that vehicle over five years (including depreciation) to make sure your choice really is within your price range.
Want a fully digital shopping experience? Try “How to Buy a Car Online in 5 Easy Steps”.
When’s the best time to buy a car?
The best time to buy a car is usually around the end of the year, when yearly, quarterly and monthly sales goals begin to come together. That’s when there might be bonus opportunities for the salesperson or dealer that give them extra incentive to offer you a good deal.
It’s also important to keep an eye on the end of the model year, when the newest versions come out. You might get a better price on last year’s model if you wait for the new model year to roll out.
Major holidays are often good times for deals, as well.
How to finance a car for the first time
If you can’t pay cash, you’ll likely have to take out a loan. Car loans from dealers often have higher interest rates, and may include extra charges, so check with banks, credit unions and online lenders first to try to find the best financing. To decide whether to give you the money, and under what terms, lenders will look at your income, how much you have for a down payment, your debt-to-income ratio, how stable your job is and your credit history. If you have little or no credit history, you may need your parents or someone else with established credit to cosign the loan.
Buying your first car? Getting preapproved before visiting a dealership can make it easier to compare offers and stay focused on the full cost of the vehicle instead of only the monthly payment.
Getting the best deal on your new car
Armed with the results of your research, you’re ready to go shopping. Here are some ways to satisfactorily seal the deal:
- Check customer reviews of dealerships in your area to pick up valuable information about their sales tactics and negotiating styles.
- Focus on the price rather than the monthly payment. A lower purchase price can save you money in the long run.
- Use your preapproved financing as a bargaining chip when you negotiate with the dealer.
- Get quotes from several dealers. Starting with the lowest price, ask others if they’ll consider beating it.
- Don’t tell a salesperson you’re buying a car for the first time. You don’t want them to steer you to the wrong vehicle. Then, offer just the information necessary to complete the transaction, and only when they need it. Definitely avoid discussing price and payment until you’re ready to buy.
- Be prepared to go someplace else if you don’t get the deal you want.
Get the inside scoop. Check out our guide, “How to Get the Best Price on a New Car”, for finding the car of your dreams at the right price for your budget.
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FAQs about buying your first car
Start by setting a total budget, not just a target monthly payment. Include taxes, registration, insurance, fuel and maintenance so you have a more complete picture of what the car will cost.
That depends on your budget and comfort level with maintenance. A used car may cost less up front, while a new car may come with warranty protection and fewer immediate repair needs.
Compare financing from banks, credit unions, online lenders and the dealership. Getting preapproved can help you understand your price range before you shop.
Review the total cost to own the vehicle, fuel economy, insurance costs, safety features and your financing terms. If you’re considering a used vehicle, “Buying a Used Car: A Checklist to Make It Easier” can help you prepare.
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