6 Rules for Buying Your First Car

Recently I helped a family friend buy her first car. It reminded me what an overwhelming and intimidating experience it can be for first-time car buyers.

When Susan first called, she hadn’t decided whether to buy new or used or lease, and she had no idea what her credit score was. She didn’t know how to figure out what monthly payment she could afford.

All she knew was that she needed wheels, fast.

Here are the steps we went through that eventually led to a good deal on her first new car.

1. Set your budget

Luckily, Susan had a full-time job with a good salary. Unfortunately, she lived in Los Angeles, where the cost of rent is through the roof.

I told her that her car payment and all car expenses (insurance, registration, etc.) should total no more than 20% of her take-home pay.

She worked the numbers and came up with a monthly payment of $350 and said she had $5,000 for a down payment.

2. Get preapproved before you shop

The hardest thing to do, in my role as coach, was to keep Susan from just heading to a dealership and throwing herself at their mercy. Dealerships seem to have a gravitational pull because, after all, that’s where the cars are.

But I kept telling her that as a first-time car buyer — and particularly during a pandemic — she should do as much as possible remotely. That would mean using email, text and phone calls to shop and haggle with the dealer.

But the next step, after budgeting, was to apply for a loan before going car shopping. Here’s why:

• You find out what interest rate you qualify for.

• It unearths any problems on your credit report.

• Preapproval puts you in a stronger position to negotiate at the dealership because you’re not worried about financing.

The first lender turned Susan down. But it did give her a copy of her credit report along with her credit score. With this knowledge, she chose a lender that worked with mid-tier customers, and she asked for a smaller loan amount.