Your First-Time Car Buying Cheat Sheet

Couple Going Car Buying

Car buying can be exciting and fun, but it can also be scary, especially for a first time buyer. It is easy to imagine yourself driving off the lot and into the sunset in that shiny new car, but it is also important to think about the long term financial obligations and lifestyle commitments.

Buying a car is one of the largest financial commitments a person makes next to buying a house. Car buying is not only a large financial obligation but a long term one.

Follow these car buying tips to ensure you buy a car that you can realistically afford and will be happy with in the long run.


Find the Magic Number

Cars come in all different colors, sizes and price ranges. Many people make the mistake of rearranging their budget to fit the payment of the car they really want, but this could lead to major financial trouble in the future.

To find your magic number, or monthly payment you can realistically afford, you must start by creating a car buying budget. This will help you limit your options to cars that are in your price range and fit your lifestyle. This ensures that you will be happy with the purchase in the long run.

First, determine your monthly household income (what you take home after taxes) and your monthly expenses. The expense list should include everything big or small, your phone bill, savings or retirement fund, rent or house payment, date night, even that mid-day trip to the work vending machine.

Once you have figured out your monthly budget you must decide not only how much you want to spend, but what you can realistically afford to spend. With your budget in mind, a good rule is not to spend more than 20% of your monthly income on a car payment.

Your magic number = between 15-20% of your monthly income after taxes.

But consider your other expenses, if you have credit card debt or student loan payments that are taking a nice chunk of your change after you bring home your paycheck, consider lowering this percentage as necessary.

Your car payment should be what you can comfortably afford. If you stretch your budget too thin and cut expenses that aren’t realistic, you run the risk of getting in over your head. When creating your budget, and setting your magic number, be honest with yourself. Your monthly payment should not be a burden.

Narrow the Playing Field


After developing your budget and determining your magic number you need to decide what is a necessity and what you can live without. Think about your daily routine and ask yourself the following questions.

  • Are you the carpool queen or do you typically commute to work alone? If you carpool, a spacious backseat may be higher priority to you. If the commute is long and traffic filled, you will want to take a closer look at fuel economy. Think about your work parking lot; if it has small spaces, a compact car may be a better option
  • What type of safety features are important to you? If you already have a family or plan on starting one in the near future, it is important to think about safety and accessibility
  • Do you need a large amount of cargo space or towing capabilities? If you have kids that play sports, if you take frequent road trips, or you have a trailer to haul cargo, then towing may be a bigger concern

Understanding the difference between your needs and wants, and finding a financially friendly balance, is the key to long term satisfaction in your purchase. Use your answers to the above question to make two lists, needs and wants. Creating these lists will help you narrow down your list to cars that fit within your price range and lifestyle.


Make a Wish List

With so many different makes and models available, it can seem overwhelming. Use your magic number and need and want lists to begin making your car wish list. Even if you already have a car in mind, it is good to look at similar vehicles to be sure you haven’t overlooked a better option or an option you didn’t know was out there.

Start by choosing three different models you are interested in. Then, do the following:

  • Look for ratings and reviews
  • Know the standard features
  • Compare these models to similar ones from other companies

Look for a car that meets your needs first, and remember that ownership is more than just your monthly payment. Overall ownership costs include taxes, fuel, insurance and maintenance. If the models you have picked fall below your magic number, you can determine if you are able to add extra features from your wants list.



So, you have narrowed your wish list and have a better idea of what type of car best suits you, but don’t run out the door and to nearest dealership just yet.

You may have seen a few models you really liked but were out of your price range, or maybe the models in your wish list don’t come equipped with items on your want list. If that is the case, you may want to consider leasing or buying a used car. When deciding between buying new, used or leasing it is important to know the pros and cons that come with each.

The obvious pro to leasing a car is the ability to drive a more expensive and newer model car for less. If you are all about the latest and greatest, this may be the best option for you. Leasing allows you to drive a new car with the latest technology and other embellishments on your want list, while also checking off the important factors on your needs list. If you decide to lease a car, carefully read over the terms and conditions of your lease. A major con of a lease agreement can be a limitation in the amount of miles you can put on the car. Many leases enforce penalties for going over.

If you choose to buy a new car, you can still get the flashy new models and technology, but it comes at a much higher price. Buying a new car can mean reducing the number of wants and focusing more on the needs. The good thing about buying a new car is you get the full warranty, roadside assistance, lower interest rates, and, if you take care of it, the vehicle could last you way beyond your payments.  You will also be able to modify the car to your specific preferences. The biggest con to buying a new car is the quick depreciation in value as soon as you leave the dealership.

A new-to-you car may be the best of both worlds. Buying a used car is the best way to get your desired model and extra features without having to break the bank. If you are willing to compromise on buying an older model, chances are it will already be equipped with items on your want list without the extra cost. The con to buying a used car is higher mileage and shorter warranty coverage.


Know Before You Go

Your adrenaline is pumping, the excitement is growing and you are ready for a test drive! It is almost time for the fun part, but don’t get ahead of yourself just yet.

Know before you go. At this point you have narrowed down your wish list to vehicles that are right for you.  The next thing to consider is payment and financing.

To ensure you are getting the best deal on your purchase, you should do the following:

  • Know your credit score
  • Find the best interest rates and financing options: bank loan, local lenders, credit unions
  • Know the trade-in or sale value of your current vehicle
  • Consider different buying options: direct buying sites, dealerships, auctions
  • Find discounts, manufacture’s rebates, or rebates for students and military personnel

      The Test Drive

      You have found options that are the best fit for you and you are ready to get behind the wheel! The best way to set up a test drive is to call the dealership ahead of time and schedule and appointment.

      To get the most out of your test drive, you should drive the car in conditions that are most like your everyday routine, pay close attention and take your time.

      • If you commute to work, see how the car handles stop and go traffic and highway speeds
      • Test the brakes
      • Don’t get distracted by GPS and radio features. Listen for excessive road, wind or engine noise
      • Park the car. Get in and out, adjust the seats and test out the gauges and controls
      • Get in the backseat. Is there enough room for passengers to ride comfortably?
      • Does the car have enough cargo space to fit your lifestyle and needs?

      Be sure to ask questions. You know your needs best, and you should be able to determine, after the test drive, if that particular car is a good fit.

      Test drive more than one!

      Time to Buy

      When it comes time to start the paperwork remember all the homework and research you did to get to this point. Making the right decision is important, and you don’t have to make the decision right then.

      If you decide you have found the right car for you, congratulations you are now the proud owner of a shiny brand new or new-to-you car!


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