Buying Your First Car: Answers to All Your Key Questions

We often associate cars with freedom and independence, and even with our identity — which makes buying your first one exciting. But with so many decisions to make, buying your first car can be daunting, no matter your age or budget. NerdWallet answers first-time car buyers’ top questions, so you’ll know all the moves to make to drive home the one that’s right for you.

How should I pay?

First, decide how much car you can afford. Once you’ve picked a price range, there are two main ways to pay: by financing the car — with an auto loan or at the dealership — or entirely in cash. To decide which way to go, you’ll need to evaluate your credit.

Know your score: Checking your credit gives you a sense of what auto loan interest rates you might qualify for, if any, and is especially important for younger adults. With a lot of first-time car buyers, “it’s not that they have bad credit, it’s just that they don’t have a lot of credit,” says Scot Hall, executive vice president of Swap-a-Lease.com, which matches car leaseholders with those who want to take over a lease.

Cash or finance? The better your score, the lower your auto loan interest rate will be. If your score is average or above, borrowing money may be the easier route, since you can pay for the car over time without paying too much extra in interest. Experts recommend making a 20% down payment, if you can.

If your credit score is on the low end and would result in sky-high interest rates, consider buying with cash. The starting price for a safe and functional used car is about $2,500. Every additional $1,000 you spend will buy a newer car with fewer miles.

New Buyer Tip

Use a total car cost calculator to evaluate how much of your income you’ll spend on your car.

Should I get preapproved for a car loan?

If you’re financing your purchase, it’s smart to get preapproved for an auto loan before visiting the dealership. You’ll know what rates you qualify for, and you’ll be a “cash buyer” at the lot, which can be especially helpful for first-time negotiators. Plus, the dealer is encouraged to beat your current interest rate with a better financing offer from the dealership.

How to do it: Depending on the lender, you can apply for preapproval online, in person or over the phone. If you qualify, the lender will give you a check or certificate to take to the dealership as proof of financing. Apply with at least three lenders to get your best possible rate.

Don’t fear multiple credit dings: To provide you with a preapproved loan offer, some lenders do a hard credit inquiry, which slightly lowers your credit score. Don’t let hard pulls stop you from comparison shopping. Applying with several lenders within a short time, usually 14 days, should register as only one pull.

New Buyer Tip

Use an auto loan calculator to compare loan offers.

Should I buy used or new?

The answer here lies in your budget and preferences. Buying a used car can be a good fit if you want to save money and don’t mind doing some extra research. But if you’d rather not worry about a car’s condition and you’re willing to spend a little more for a newer ride, hit the dealership.

Buying used: For young adults or those with limited budgets, buying a used car is often a wise choice. You avoid the steep depreciation costs in the first year of a car’s life and get it for a fraction of its new-car price. But it takes a little more work.

You can buy from used-car dealerships or superstores like CarMax or from a private seller on websites like Craigslist. Vet used cars carefully. Check the vehicle history report; you can get one from companies like CarFax or AutoCheck if it isn’t provided. Also, have the car inspected by a mechanic you trust and find out it if the car’s service records are available.

Buying new: Want to skip all that legwork? Buying a new car is more expensive, but shopping is convenient, since the car’s condition is guaranteed. Additionally, auto loan rates for new cars will be lower than for used cars.

New Buyer Tip

How do I pick a model?

First-time buyers should start with how they’ll use the car.

“Are they looking for a commuter? Something for just going around the city? Do they want something that can carry a lot of things?” prompts David Muller, an editor at Car and Driver, a car magazine and website.

This can help determine what type of car you need — a subcompact, a sedan or something bigger, like an SUV.

Check online ratings: Once you narrow down the type you want, use online car resources like Edmunds and Kelley Blue Book to read reviews and find which models have the top recommendations. You can also find safety ratings online, such as the Insurance Institute for Highway Safety’s Top Safety Picks.” And if you drive often and want to keep gas costs down, consider cars with good fuel economy ratings from FuelEconomy.gov.

Use “finder” tools: Online car finder tools will help you find models that meet your specific needs. They’ll filter the car market based on price, brand, body style and more. Once you’ve singled out a few models you like, you can check out consumer reviews on websites like Consumer Reports.

New Buyer Tip

Build a list of three to five cars that meet your needs and preferences.

How do I shop the dealerships?

To get the best price on your car, you need to shop around. But that doesn’t mean you have to spend countless weekends dealership hopping.

Use the internet department: Most dealerships have internet departments —  employees able to price, negotiate and finance cars via phone, email or text messages. This means you can go to one lot to test-drive your desired cars, then go home and email multiple dealerships for price quotes.

Survey your options: You don’t have to buy or even discuss pricing with the salesperson the first time you visit the dealership. And, in fact, you shouldn’t try to handle it all in one day, says Ron Montoya, a senior consumer advice editor at Edmunds: “You’re not going to have the ability to shop that price around, to see what other options you have.”

New Buyer Tip

Many car-buying apps let you compare local dealer prices and offers.

How do I negotiate?

A lot of first-time buyers are understandably nervous about negotiating, but there are ways to safeguard yourself.

Focus on the total price: “Never tell the dealer, ‘This is how much I want to pay per month,’” cautions Muller. You risk being seduced by lower monthly payments, but winding up with a long loan term and extra interest. Instead, negotiate on the car’s total price.

Take your time: You might not enjoy haggling over the price of your new ride, but rushing through it could result in a bad deal. Take as much time and care as you need. “Keep in mind: A dealer has to sell a car, you don’t have to buy,” Hall says. “Don’t be afraid to sleep on it. Don’t be afraid to go grab some lunch and think on it. Don’t let the dealer pressure you.”

New Buyer Tip

Use online pricing guides to research a fair price before you negotiate.

Am I ready to close the deal?

Closing a deal with a private seller is simple. Just check with your state’s department of motor vehicles to see what paperwork you need. At a dealership, the finance and insurance manager handles the paperwork — and the closing is a bit more involved. Dealerships often try to build extra profit into the deal. Be on the lookout for:

Extended warranties: Most new cars come with a three-year/36,000-mile bumper-to-bumper warranty or a powertrain warranty for up to 60,000 miles. At the dealership, the finance manager may push an extended warranty. These can offer peace of mind by eliminating the costs of unexpected repairs, but why buy something now that you won’t need for another three years? You can always buy one later.

Bogus fees: Your sales contract will show the price of the car, state and local taxes, a documentation fee and registration fees. If you see additional fees, ask the finance manager to justify them — and don’t pay any extra costs he or she can’t explain.

New Buyer Tip

Be ready to say no to upsells when closing a sale in a dealership.