How millennials and Gen Zers can find the right ride.
1. Start with your budget
Crunch some numbers before you even begin your search to figure out your budget. Look at your savings and add up how much you can reasonably expect to make on a down payment. Subtract any recurring monthly expenses from your income after taxes to figure out how much you can reasonably afford to pay each month.
Leave yourself some wiggle room — don’t plan on draining out your emergency fund for a down payment. And don’t make any assumptions about your future budget — even if you have a high-paying gig tentatively lined up.
How much should my car down payment be?
2. Consider what you need a car for
Are you just driving to and from work? Do you move a lot? How long do you plan on keeping this car? What type of weather will you be driving in? Thinking about how and where you’ll use your car can help you narrow down your choices.
If you live in a city and just need to get to work, a smaller electric vehicle might be the way to go. But if you live in the mountains or areas with rough terrain, you might want to consider a truck or SUV with four-wheel drive. Camp or move a lot? Maximized storage space might be your best bet.
3. Do research and rely on others’ experiences
Learn the basics of first-time car buying by reading guides online. Also take advantage of your friends’ and family’s experiences with car buying to find out if they have any tips for you. They’ll likely be able to give more personal advice than you can find on the Internet since they’ll have an idea of your budget, spending habits and how you plan to use it.
Once you’ve narrowed down your vehicle choice, consider reaching out to a few dealerships online or over the phone to get a rough estimate of how much it’ll cost and what financing options or discounts are available. Compare these dealership quotes to the factory price of the car — you can find this on the manufacturer’s websites. With used cars, you can get a ballpark estimate on the cost of a car from sites like Kelley Blue Book and Edmunds.
4. Test-drive multiple cars
You won’t really know what driving a specific car is like until you get behind the wheel. Visit multiple dealerships and test-drive a few different models to help you narrow down your choices. You might be surprised to find that the car you were mooning over online is actually too difficult to maneuver.
5. Compare all the different ways to pay
Dealership financing might sound easy — and it could very well end up being the best option for you. But you won’t know unless you consider all of your options first. These include:
- Paying in cash. This option might be a good idea if you have bad or no credit, no cosigner and enough money to foot the cost up front. But buying a car with cash might not be the best way to spend that money if you can qualify for a good rate on a loan.
- Leasing the car. Not sure how long you’ll even need a car? Like switching up your car every few years? Leasing might make the most sense for you.
- Dealership financing. With offers like 0% APR financing and rebates, dealerships can often offer deals you won’t find at third-party lenders.
- Car loans from a lender. Take away the bells and whistles of dealership financing and you might find more favorable rates and terms at a bank, credit union or online lender.
6. Prequalify and get preapproved on a loan
If you’re thinking of getting a car loan, prequalify with a few lenders to see which one can offer you the most competitive deal. And once you’ve found an offer you like, you might want to apply for preapproval — even if you’re leaning toward dealership financing. This way you’ll be in a better position to negotiate a lower rate when you hit the car lot.
How to prequalify
You can typically prequalify with a lender by filling out a quick online form. This will give you a ballpark idea of what rates and terms you might qualify for, as well as how much of a down payment you’ll be required to make.
It usually doesn’t involve a hard credit check, so it won’t affect your chances of getting approved with another lender. After comparing your prequalifying offers, pick your top choice and apply for preapproval, if it’s available.
How to get preapproved
Preapproval involves a more detailed application and credit check, which can cause your credit score to drop slightly. You’ll have to submit documents that support your income, residence and verify your identity.
In return, you get an offer that lasts roughly 30 days, which you can use to shop around for a car. You aren’t committed to the loan until you sign the documents, so you can use your preapproval offer to negotiate down dealership financing as well.
7. Bring on a cosigner
If you don’t have much of a credit score and plan on financing your car, a cosigner can increase your chances of approval by helping you meet income, credit and other requirements. And you may be able to score a more competitive deal in the process.
Just be aware that your cosigner will be responsible for paying back the loan should you struggle to make repayments. Though you can always take them off the loan by refinancing later on down the road after you’ve improved your credit score or made more headway in your career.
8. Wear something presentable to the dealership
How you present yourself when buying a car in person can make all the difference. Some salespeople are wary of letting young-looking drivers take a car out for a spin. Others might assume you’re easy to take advantage of or don’t have your finances together. Wearing something presentable can help ensure you’re taken seriously when you hit the car lot.
9. Don’t be afraid to negotiate a better deal
Negotiating might be uncomfortable if you’re not used to it. But it’s generally expected when you buy a car at a dealership. Both the price of the car and financing are up for debate.
The best way to prepare for negotiations is to do your homework. Read up on how much your car should actually cost, and prequalify with a lender so you can use that offer as leverage to negotiate at the dealership. Salespeople make commission if you finance with them, so they might be willing to match that offer or even beat it if it means getting your business.
Also, research common sales tactics to avoid making a rookie mistake. If they only talk about the cost per month, push to ask about the actual price of the car. If they don’t mention fees, ask about those as well.
10. Avoid extras
Salespeople often like to add on extended warranties, GAP insurance and other products that can up the price of the car they’re selling. Unless you know you absolutely need something, don’t agree to pay extra for it. And if you do decide to purchase one of these add-ons, try to avoid rolling it in to the cost of your loan so you don’t end up paying interest on it.
11. Know when to take advice — and when to pass
You know you’re prepared when you have a strong sense of when to heed certain types of advice — and when to skip it. For example, most experts recommend that you avoid a loan term longer than 60 months. But if you truly plan on keeping that car for as long as it runs, the benefits of a long-term loan might actually outweigh the risks.
Shopping for a car locally?
Getting a car for the first time might seem daunting, but you can find a good deal if you arm yourself with information. Don’t be afraid to rely on others’ experiences to help you make a decision.