How to Buy a Car

October 8, 2024 - Ria Schultz

Buying your first car can be both exciting and overwhelming, especially if you’re unfamiliar with the process. With many decisions to make—ranging from budgeting to selecting the right car and navigating financing options—it’s important to be well-prepared. Here's a step-by-step guide to help you through the car-buying process.

Step 1: Establish Your Budget

Before heading to the dealership, you need to know how much you can afford. Start by reviewing your monthly income and expenses. Set a budget that includes not only the car price but also ongoing costs such as insurance, gas, maintenance, and registration fees. The key is to determine a manageable monthly payment that won’t stretch your finances too thin.

Once you have a budget in mind, research what kind of cars fit within that range. Remember that buying a car typically involves financing, so be sure to factor in the interest you’ll pay on the loan as well.

Step 2: Research Potential Cars

Once you know your budget, it’s time to research. Consider factors like fuel efficiency, reliability, safety features, and resale value. Make a list of several cars that meet your needs and preferences. Websites like Kelley Blue Book, Edmunds, or Consumer Reports can provide valuable insights into various makes and models.

Step 3: Save for a Down Payment

A down payment reduces the amount you’ll need to finance, which can lower your monthly payment and the total interest paid over the life of the loan. Generally, a down payment of 10-20% of the car’s price is recommended, but even a smaller down payment can help.

Step 4: Check Your Credit Score and Financing Options

Your credit score plays a critical role in the interest rate you’ll be offered. The higher your credit score, the lower your interest rate is likely to be. Before visiting the dealership, check your credit score and, if possible, take steps to improve it.

If you have a short or limited credit history, like many first-time buyers, you may need a cosigner. A cosigner with strong credit can help you secure a better interest rate. Please ask those you trust!

Shop around for financing options before you visit the dealership. Compare loan terms from banks, credit unions, and online lenders. This will give you a clearer idea of what rates and terms are available, and you may be able to secure a better deal than what the dealership offers.

Step 5: Test Drive and Choose Your Car

Once you’ve done your research and saved up for a down payment, head to the dealership to test drive the cars on your list. Pay attention to how the car handles, its comfort level, and any features that are important to you. Don’t feel pressured to make a decision immediately—test driving multiple cars helps you find the best fit.

Step 6: Avoid Unnecessary Upgrades

After you’ve chosen your car, the dealership may offer different models with extra features like leather seats or a sunroof. These upgrades can quickly raise the price, so it’s important to stick to your original budget. Decide what features are non-negotiable and which ones you can live without. It’s easy to get swept up in the excitement of buying a new car, but staying focused on your budget will prevent unnecessary spending.

Step 7: Understand the Loan Terms

When financing a car, it’s crucial to understand the terms of your loan. Car loans typically range from 36 to 72 months. A longer loan term (like 72 months) will result in lower monthly payments, but you'll end up paying more in interest over the life of the loan. On the other hand, a shorter loan term (like 60 months) means higher monthly payments, but less interest paid overall.

For example, let’s compare two financing options for a $25,000 car at a 3.11% interest rate:

  • Loan 1 (60 months): Monthly payment of $432, total cost of $26,945
  • Loan 2 (72 months): Monthly payment of $365, total cost of $27,340

In this case, Loan 2 offers lower monthly payments, but you’ll pay $395 more in total over the life of the loan. Consider what works best for your budget and financial situation.

Interested in more information? Visit our blog "Understanding Loans" for more information!

Step 8: Negotiate the Best Price

When negotiating with the dealership, focus on the total price of the car, not just the monthly payment. Some dealerships may try to extend the loan term to lower your monthly payment while raising the overall cost of the car. Be clear about your budget and loan term preferences, and don’t hesitate to negotiate.

You can also try negotiating the car’s price based on what you've seen at other dealerships or online. If possible, bring pre-approval for financing from a bank or credit union to show the dealership you’re prepared and serious about getting a good deal.

Step 9: Finalize the Deal

Once you've settled on the car and the financing terms, review the contract carefully. Make sure all the numbers align with what you discussed, and don’t rush through the paperwork. Ensure that no additional fees or unnecessary warranties have been added without your consent.

Step 10: Drive Away Confidently

After signing the contract and making the down payment, you're ready to drive off in your new car! Keep your financing paperwork and car title in a safe place. Now that you're responsible for monthly payments, staying on top of your budget and avoiding missed payments will help you maintain a good credit history.

Conclusion

Buying your first car is a major financial decision, but by following these steps, you can navigate the process with confidence. From budgeting and researching to understanding loan terms and negotiating the price, each step is crucial to making an informed decision. Remember, patience and preparation are key to finding a car that fits your needs and your financial goals.

If you want to discuss it further, please contact the CFC at cfc@unm.edu or call us at (505)277-3361!