Jan 20, 2016 / Auto & RV

Financial Firsts: Buy a Car with Confidence

Ah, your first car purchase. It’s a milestone moment when you get behind the wheel and cruise off in a set of wheels that you picked out, paid for, and signed off on.

But it’s important to know what you can afford, what to look for, and what your options are before you start wheelin’ and dealin’.

Don’t get taken for a ride: here’s what you need to know to make your first car-buying experience a success:

1. Do the math.

Before you buy, calculate your budget. Knowing what you can afford will help you narrow down your options and prevent you from overextending yourself financially. That new ride won’t feel so shiny if you’re struggling to keep up with the payments.

In addition to how much you can afford for your monthly payment, don’t forget to factor in costs for insurance, gas, maintenance, roadside assistance service, and other potential costs like winter tires.

Once you know what makes and models you’re interested in, call your car insurance company for a quote. If you haven’t been driving that long, your insurance will likely be higher than a more experienced driver’s. Upgrading from a used vehicle to a brand new car will also increase your insurance payment.

2. Research before you test drive.

It’s easy to be swayed by the shiny paint jobs and sleek wheels you see at the dealership, so do your research before you hit the car lot.

Make a list of the makes and models that suit both your budget and your personal preferences, as well as the factors that weigh most heavily in your decision-making process. For example, if you have a long daily commute or a penchant for inter-state road trips, put economical gas mileage at the top of your priority list.

No matter what your lifestyle is, safety ratings should be always be a priority. You can find the safety rating for every make and model online. If a particular model you’re interested in doesn’t have a high safety rating, cross it off your list of options.

While most safety features are required on newer models, older cars may not have them. Make sure you choose a car that has:

• Anti-lock Brake System (ABS) – prevents your wheels from locking up during hard braking so you can retain control of your car. Crucial for driving on our icy winter roads in Utah.
• Electronic Stability Control (ESC) – keeps your car from sliding sideways or “fishtailing” if you take a turn too fast of lose some tire traction during poor weather conditions.
• Side Airbags – like front airbags, side airbags provide additional life-saving head protection in case of impact.

If you’re buying a used car, ask for an official vehicle history report so you know about any accidents, liens or other potential problems in advance.

3. Understand depreciation.

It’s no lie when you hear that your new car drops in value the moment you drive it off the lot: that first joyride will shave off thousands. Depreciation is the loss of your car’s value over time, mainly due to wear and tear – and the more your car depreciates, the lower its resale value is.

If you’re hoping to resell your car in a few years, focus on preserving its value. Follow these tips to lessen the depreciation of your car:

• Get regular maintenance and keep copies of all maintenance records, even minor items like oil changes.
  
• Use manufacturer-recommended protective products on your car’s interior and exterior.
  
• Wash your car regularly to avoid long-term damage caused by dirt or other debris that may build up on your paint or interior surfaces.
• Buy classic: avoid trendy paint colors or heavy modifications. These will limit potential buyers and likely look dated within a few years’ time.
• Avoid smoking or eating in your car. Both can leave long-term staining or smells that turn off potential buyers.

If you’ll be buying a used car, you can also use depreciation to determine how much you’re willing to pay. Look up the current value of the car before agreeing to a price. You’ll typically find that mainstream, economical makes that offer popular features like automatic transmissions and dual temperature control are in demand.

4. Know your purchase options.

If you’re purchasing a new car, you can opt to either buy it traditionally or lease it.

Buying – When you buy a car, you typically provide a down payment and partner with your bank or car dealership to finance the remainder of the car’s worth. You’ll then make monthly payments until the car is paid off. There are “zero down” financing options available but these will result in much higher monthly payments; it’s best to avoid them unless you are positive you can make the high payments without struggling financially.

Leasing – When you lease, you won’t be agreeing to a loan for the car’s full worth. You are only responsible for covering the portion of the car’s worth that is equal to the time frame in which you carry the lease. For example, if you lease a car for three years, your payments will cover three years’ worth of the car’s value. You’ll still make monthly payments that include sales tax and other fees and, instead of a down payment, you may be required to put up a security deposit when you sign the lease. At the end of your lease term, you’ll have the option to either renew your lease and keep the car or return the vehicle in favor of leasing or buying a different car.

To determine whether you should buy or lease, you should consider:

• Length of Ownership – the average lease is 36 months. If you’re planning on keeping your car for five years or more, purchasing will save you the hassle of having to extend your lease every few years.
• Anticipated Mileage – your lease agreement will include an annual mileage maximum, typically 10-13,000 miles. If you exceed the designated mileage in your lease agreement, you’ll have to pay additional fees.
• Down Payment – you can expect to pay at least $1,000 in “drive-off fees” for a leased car; however, this option may be preferable if you don’t have a substantial down payment saved up or another car to trade in for purchase. Remember, though, that listed monthly payments on leases are never as low as they seem: you’ll also be paying sales tax, interest, and other fees.
• Financial Goals – although your car will depreciate during ownership, it can also help you build equity if you take good care of it. Your car becomes a more equitable asset as you pay off more of the loan. And once your loan is paid off, the value of your car at that time is now an asset that you hold. For example, if your car is valued at $16,000 at the time you finish making payments, you now have $16,000 in assets. Although leasing a car can help you build credit, it won’t help you build equity because you aren’t taking ownership of the car.

It’s also important to know how much wiggle room you have before you start lease or purchase negotiations. If you have a high FICO score, you’ll qualify for lower interest rates – which means you’ll have a lower monthly payment. The same goes for down payments: if you can offer a considerable amount of the sticker price upfront, you’ll likely be able to negotiate lower payments or get the dealer to knock a bit off the advertised sticker price.

Ready to finance your first car, or need a little boost for your down payment? Utah First can help you with all your financial firsts, including getting behind the wheel of that car you have your eye on. Talk to us about your auto loan options. Apply online with just a few clicks, or call us at 800-234-0729.