How to Buy a Car

November 15, 2020 - Christian Torres

Buying your first car can be a little intimidating, especially if you don’t know the big words the salesman is throwing at you. When I went to go buy my first car, the salesman was using financial terms that I didn’t have a full understanding of. The only thing I knew, was the car I wanted to purchase was around $19,000. I had good credit, but my credit history was short, so I needed my mom to co-sign.

Before going to the dealership, I had to do a lot of research on the type of car I wanted and made a small list of the potential cars. After researching, I started saving money for a down payment.

My mom and I were talking to salesman and I learned that I had fairly good credit so my interest rate was fairly good for an 18 year old. Of course, having a cosigner and someone that had experience in purchasing a car did make my life a little easier, but it is not mandatory for all first-time car purchasers.

After I test drove several cars, the one I was most comfortable in was a Nissan Altima. I liked the smooth ride, and once I finished test driving it, I knew I wanted it. Fortunately, it also fit my budget. My mom, the salesman and I walked back to the salesman’s office. When we entered his office, he began offering different models of the Altima, like a coupe version, two-door car, or an upgraded Altima with leather seats and a sunroof. I didn’t know at the time this would affect the price of the car, and I almost made the mistake of purchasing one of the models with the upgraded features and higher price. Yikes! Luckily, I had my mom there to help me through the whole process.

I declined on the different models and stuck with my original car with standard features. I financed the car, with a decent interest rate and I was able to get my first car! It is possible for students to purchase a new car in college, especially now with interest rates at very low levels.

My recommendations to anyone looking to purchase a car is to have a budget of how much you can spend on a car before you go shopping and stick to it. Most people, like me, are not able to pay cash for a car and many have to finance the vehicle (like I did). So, before you go shopping, look at your monthly budget. Determine how much you can spend each month on car payment and structure your financing of the loan so that it fits your monthly budget. For example, car loans can be financed with a variety of different terms. There are loans that vary in the length of the loan, but perhaps the two most common are 60-month car loans, or 72-month car loans. Always remember that if the interest rate is the same and all other things are equal, a longer term the loan, will result in you paying more interest over the life of the loan. I have illustrated this below.

Let’s say I am looking at two different financing options for a $25,000 car. Both have the same interest rate (3.11%). When I calculate the payment over 60 months vs 72 months, you see that while the monthly payment is lower for a 72-month loan, the total amount that I pay over the life of the loan is greater. In addition, I will be paying the loan for 12 months longer. Buyers should consider these things when looking at the terms for financing a car. There is no better answer, a buyer should simply choose the financing option that works best for them.

Loan 1 (60 Months):

Loan Amount: $25,000

Interest Rate: 3.11%

Loan Period: 60 Months

Down Payment: $1,000

Monthly Payment: $432

Total Cost: $26,945

Loan 2 (70 Months):

Loan Amount: $25,000

Interest Rate: 3.11%

Loan Period: 72 Months

Down Payment: $1,000

Monthly Payment: $365

Total Cost: $27,340