How to Buy a Car New/Used

How to buy a car. 4 Simple tips.

Deciding how to buy a car can be overwhelming.
You may be wondering…

  • How to buy a car at the best price.
  • What’s the best car for me to buy?
  • How to buy a car from a dealership and avoid scams.
  • How to buy a car from a private party. What are the risks?
  • How much money do I need to make to buy a car and finance it?
  • What will my car payment be?
  • How much can I afford to spend on a car?
  • How to finance a car.

I promise the information will help teach you how to buy a car, without so much confusion! Don’t get taken advantage of by dealerships scams that prey on first time buyers who don’t know how to buy a car.

Step 1. Determine your budget

Paying Cash?
If you plan to pay cash for your car, this process is fairly simple.

How much money do you have to spend on your new car?
A common mistake it overlooking the expense of tax and license fees. License fees very from state to state, but just for example I’ll use $100 as the figure. The tax rate in Washington varies for automobile purchases, but in Snohomish County it’s currently 8.6%.

Using this information, if you know you have $10,000 saved for your car purchase, you would want to look at a purchase price of about $9,000. This gives you room for the extra cost of tax and license (which would equal $960 using our Snohomish county tax rate and the $100 license fee.).

Need to get a loan?
If you will be financing your purchase, there are many things to consider and prepare for before even visiting dealerships.

No matter what type of vehicle you decide to buy, you will probably need cash down. Be prepared! 15% -20% of the purchase price is the minimum you should have available. (For a $10,000 vehicle you should have at least $1,500 to $2,000 available).

If you don’t have the cash, start saving or borrow from a friend or family member. Having a down payment will keep your payment lower and help you get approved!

Know your credit score! Ordering a free online credit report is a great way to learn what your credit report includes.

If you have no credit at all (good or bad) then you should consider an affordable NEW car or truck. Most car manufacturers include rebates and first time buyer programs that will make financing a purchase easier for you. New cars almost always qualify for a lower interest rate; this will keep your payment lower.

If you have a little credit (no bad credit, slow/late payments or collections), you may be able to purchase a pre-owned car. Most manufacturers have a “Certified Pre-Owned” program that will allow you to buy an “almost new” car with a warranty.

For example, Ford offers certified vehicles with a 6 year/75,000 mile warranty, road side assistance, and lower interest rates.

If brand new or certified seem too expensive, then you should think about used cars or trucks. But remember, cheaper isn’t always better when you are financing. Less expensive usually means older with higher miles. To the lender, these cars are not as valuable. This makes it more difficult to get approved as a first time buyer. When buying used; stay 5 years or newer with less than 75,000 miles to improve your chances of getting finance approval.

A few more car loan considerations.…
Most banks will not allow you to have a payment higher than 15%-20% of your gross (before tax) income. Most lenders want to see at least $1,250 a month of gross income and 6 months or more on the job.

Lenders to not want to see a lot of credit “inquires” on your credit report. Don’t let every dealership check your credit! It’s better to avoid filling out credit applications until you chose the car you want to buy or have decided on the dealership where you will make your purchase. THEN fill out one credit application rather than several at numerous dealerships that bring down your credit score.

Step 2. Insurance Costs & Considerations

Another area of consideration, even with a cash purchase is determining your insurance costs.

One advantage to buying a car with cash is you are not required to carry “full coverage insurance” which may reduce your insurance costs overall. **Laws do vary from state to state, so you should check with your department of licensing or insurance company to verify the requirements in your state.

Remember to call your insurance company or go online for a quote so you can decide which type of vehicle best fits your monthly budget and your driving needs ~ as a first time buyer, insurance rates may be higher on different types of vehicles and this information may help narrow your choices.

Step 3. Decide on the Type of Car

First determine ‘how much car can I afford?’ (By the way…When I say ‘car’ I’m talking about car, truck, and SUV)

Take your gross monthly income and multiply by either 15% or 20%. This will likely be the maximum car payment you can afford, according to a bank or finance company.

Start with this figure and look at your actual expenses, take home pay, regular monthly bills and decide on a realistic figure or monthly payment range you can afford.

Don’t stretch yourself too thin! Bearing in mind that your interst rate on your new car loan will vary depending on lots of factors you can almost count on your payment being about $180-225 for every $10,000 that you finance. Use this guide to help you determine how much you can afford to spend on your new car.

The next question you should ask yourself is ‘what will I be using the car for?’. Do you need to tow, commute, or have room for several passengers? You get the idea.

Write down the top 3 things you will use your new car for.
Below this write down the top 3 features that are most important for you based on your use of the car.

By now you should be able to get a good idea of the price of the car you can afford to buy and what types of cars will work best for you. Stay focused on this and you will make a purchase you will be happy with, rather than one that you will regret.

Step 4. Select the Dealership

Interview your dealership! I can’t stress this enough!

Email and the phone are great ways to test the waters.

You want to be sure that the dealership puts you at ease and provides the information you are looking for. Call or email to ask questions about inventory, pricing, financing. You should expect quick, courteous answers from the salesperson you talk with. Bear in mind that the salesperson won’t be able to tell you how much your payments will be or what you interest rate on a car loan might be in your initial contact…As I mentioned before, you will need to have a credit application on file before you can determine the interest rate and payments.

Call or email several dealerships that have the type of car you want to buy. See who makes you feel the most comfortable and provides you with good information and follow up.

Start there.

Set an appointment with the salesperson you talked with to test drive some cars. When you get there, be sure the story stays the same and you continue to feel comfortable. Follow these steps and you’ll be on the right track…The rest is up to you!