I finally did it! I now own a brand new car, a first for me! I wanted to share my learning process with you guys because I was vastly overwhelmed in the beginning and I know how stressful big (especially first time) decisions can be.
First, let’s get real: I’m not an expert, I’m just going off my experience.
1) Consider your options.
I didn’t start looking for a new car until my current vehicle was on its proverbial deathbed. Don’t do this! I was lucky enough for my car to last through the car buying process; I could have been royally screwed for my procrastination.
I looked at two sites in the beginning: carmax.com and truecar.com. I was confident I would be purchasing a used car that I could pay off in a year or two and these sites gave me some promising leads.
I knew I needed something with relatively good gas mileage, reliable, that could last me at least five years. I wanted a smaller car, four door, with a trunk. The initial searches gave me an idea of what was out there and roughly how much it would cost.
2) Ask people whose opinion you value/know something about cars.* (Listen, but don’t make a decision based only on hear say.)
I asked around for everyone’s car buying experiences, what model they chose, where from, any issues, etc. The two cars that received the highest praise from my group were Hondas and Toyotas. After doing some further research I learned that Hondas are known for their reliability and have great depreciation values (meaning, I could trade in the car after a few years and make most of my money back).
3) Refine your search but be open to different options.
Now that I had a make in mind, I refined my search for Hondas in the greater Baltimore area and decided I liked the Civic, Accord, and with some hesitation, the Fit models. I was concerned the Fit would be too small but it was within my price range.
My uncle insisted I keep an open mind and consider a new car but I scoffed at the idea. There was no way I could afford a new car, that’s a ridiculously big commitment!
Cliff’s father referred me to a dealer who he purchased two “dependable cars from” so I set up an appointment later that week.
4) Go to your bank or credit union to explore the possibility of a car loan.
You are not committing to a loan at this point; you will be using your pre-approval (if you get one) as a bargaining chip when you go to finance your car. This is so much easier than it sounds. I walked into the bank at midday on a Thursday and told them I was interested in a car loan- within 5 minutes I was sitting in an office discussing the possibilities.
The bank just needs basic information such as annual income, any rent you pay (just say no- additional debt makes them wary of giving loans to first time buyers), social security number, address, etc. They will run your credit score and will determine if they are willing to lend you any money. If you don’t get pre-approved, it’s ok, it is not the end of the world. You can have a family member co-sign, they are vouching for you- agreeing that payments will be made on the car.
5) Break it Down.
I don’t mind sharing: I was pre-approved for a maximum of $18,000 and up to a 72 month loan. My new car rate was 3.64%, the used car rate, 3.84%. You don’t need to borrow the full amount of your loan. Also consider that your monthly payments are based on the price of your car after taxes, title, any additional features you may choose, a trade in if you can provide one, and your down payment.
You can expect to pay a bit more than $100 in taxes per $1000 of your car’s cost. Check Kelly Blue Book to see what your car is worth, considering the year, mileage, and what condition it’s in- whatever the dealership is willing to give you for it will be deducted from the price of your car.
Down payments are a great way to get a chunk of your ticket price out of the way before interest starts accruing. I saved up $4000 to put down and it was the best decision I have ever made for a big purchase.
After considering the fact that used Hondas are only about $2000 cheaper than the new, I decided I would be primarily looking at new cars.
6) Visit the Dealership
You don’t need to make an appointment but if there is a particular car you want to test drive it’s for the best. I drove both the 2014 Honda Fit Sport and 2014 Honda Civic in the rain on residential roads and a major highway to get a feel for how each car handles.
I was surprised to see how big the Fit was, the back seat was roomier than the Civic. It also has a hatch back instead of a trunk, which I thought was a must for me. (So don’t let one feature or assumption rule out a potential car.) I knew I was going to have this car for a long time so I had to consider if a car seat would fit in the back, should I ever procreate. I also just liked how it handled better.
7) Ask all the Questions!
What kind of gas does it take? What is the warranty? Do they offer free oil changes?Does it come with a spare? What is the difference between different year models? Turns out the base model of the Fit is about $2000 cheaper- the only difference are exterior aesthetics and a map light. I decided I didn’t need a spoiler and 1 inch bigger tires. I could live without the map light.
I made an appointment to come back to let them look at my car to determine a trade in price the next week and drove home in my ratty car.
8) Continue to shop around!
I had only looked on truecar.com and carmax.com but my uncle sent me a link from autotrader.com. He found a *new* 2013 Honda Fit base model for $7000 cheaper than the 2014 Civic and a little more than $2000 cheaper than the 2014 Fit- at the same freakin’ dealership I had just visited!
The salesperson is out to make a living, they aren’t going to cut their commission by pushing less expensive cars if you don’t ask about them. I am so happy we didn’t stop looking.
9) Seal the Deal.
When I went back today to discuss the trade in I test drove the 2013 Fit and it handled the same as the 2014, nor did I notice any significant changes to the model compared to the newer edition.
They visually checked out my car, put the information into the computer, and agreed to give me $1000 for a 2006 Nissan Sentra with 138,000 miles- far better than I had anticipated. I agreed to purchase the car but wanted to see if I would be approved for their 1.9% financing.
While waiting to hear back from Honda I called my insurance company to inform them I was buying a new car and would need to update my car insurance. This is just one more aspect to consider when shopping around- some cars are going to cost more to ensure than others- like sports cars, 2 doors, certain luxury brands, etc.
When shopping at a dealership they will run your credit score and are legally obligated to inform you about what your score is; checking your own score too often can actually lower it so make a point to write down the number with the date for future reference.
Honda wasn’t confident despite my good credit since I have never made a major purchase like this so the dealership negotiated with Bank of America for me and knocked it down to 3.53% instead of the 3.64%. Honestly, the difference between the 1.9% and the 3.5% is only $8.00 more a month- over the 60 months it’ll cost me $480 more, not a huge loss but it would’ve been nice.
With my $4000 down and the $1000 trade in, the price of the car that will be accruing interest is $12,421.74. That includes the taxes, tag, title, etc. My monthly payment is $226 a month- for a new freakin’ car.
The reason financing rates are so low is because of the economy. People have held onto their cars and only replaced them when needed, most often with a used model. Being a capitalist structure, the demand for used cars went up so they were able to raise the price and financing- new car dealers are lacking in sales so they offer lower rates/prices.
After figuring out the financing I just had to sign a bunch of papers, turn in my old tags to the DMV, and have my dad sign over the old car for the trade in.
It was overwhelming at first but it actually was a pretty painless process. I hope I have made you guys feel a bit more comfortable with the prospect of car shopping. Feel free to message me below with any more questions =)