It’s a moment to savor: getting your first vehicle, enjoying the new-car smell, taking pride in ownership.
But unless you paid cash, the lender who financed your car will generally hold the vehicle’s title until the loan is paid off. In all likelihood, we are talking many miles down the road.
So here are some things to consider before you sign on the dotted line and become obliged to make those payments.
Get a sense of the landscape. Car-buying trends—what buyers want (a low price, but not at any cost), how they shop (increasingly on mobile phones), how many test-drives (usually 2)—change every year.
Taking a moment at the outset of your search to learn what’s going on has 2 benefits: you see what other shoppers consider important, and you see what the dealer “knows” about you before you walk on the lot.
Choosing your car. Probably nothing is more important than selecting the right vehicle. In addition to budget considerations and style preferences, consider the model’s typical fuel costs and repair history.
A good, impartial resource for ratings and reliability is Consumer Reports.
Pricing information. Check online for resources to identify what the dealer paid—or what consumers in your area paid for the car you’re considering.
One such tool is the True Market Value feature at Edmunds.com.
Leasing vs. buying. You walk away with a new car either way, though there are pros and cons to each. For example, leasing means your payments and maintenance costs will likely be lower, but when the lease is done you own nothing.
Here’s a handy calculator you can experiment with.
Car-buying services. A reputable third party can handle negotiations on your behalf if you’d rather avoid the stress of dealing with the retail sales staff.
Two nonprofit organizations with strong bona fides are Consumer Reports and Consumers’ Checkbook.
If you choose to bargain for yourself, be prepared to walk away if the price exceeds what you can realistically afford or if you don’t trust the salespeople.
Financing. As a first-time new-car buyer, there’s a possibility you might not have a high credit score. Credit scores typically go a long way toward determining a lender’s terms—the higher your credit score, the kinder the terms, and vice versa.
If your credit score is low (all three of the credit bureaus off your score for free annually), consider holding off until you can build it up and qualify for better terms.
Length of the loan. The big plus of stretching out a loan is that your monthly payments will be lower. The big minus is that you are seriously adding to the total cost of the car by paying more in interest.
So it really pays to do the calculations upfront.
Insurance. Virtually every state obliges you to buy car insurance, so you will need to factor that outlay into overall costs of ownership. The actual amount will vary with the type of car as well as your age, gender, accident history and credit score, among other factors.
This is a pretty good time to buy a car: the price of gas is lower than it’s been in years, and interest rates remain low as well. When you decide it’s time, knowing the basics and doing your homework will help you make the best purchase.
Peter Lewis, NerdWallet
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