Owning a car brings tremendous freedom and responsibility. But it also brings significant expenses, such as the purchase, maintenance, repairs, insurance, and fuel. Our advice can supercharge your car buying as you get ready for this big, exciting step. And remember, because a key element of driving includes sharing the road responsibly, see our guide to teen driving safety.
What can you afford?
Establishing a reasonable budget is critical. The money you have available for a down payment and potential for making monthly installments on a loan will determine your car choices. (See our picks for best cars for teens.)
As a young driver, you are probably budgeting for college or other educational pursuits, so it is important to work with your parents to set a realistic target. In doing so, consider whether this is a car just to see you through high school or whether it will be your traveling companion through college. That distinction will determine how new and reliable the car must be.
No question, the best way to save money is to buy used. A new car loses almost half its value in the first five years. The smart money is to let someone else take the depreciation hit, and instead purchase a car that is a few years old, yet still has contemporary safety features and many reliable years ahead of it. And by purchasing used, you can buy more car, meaning you could afford, say, a midsized sedan rather than a tiny econobox.
As a teenager, financing will be a challenge. Lenders are typically looking for adults with a good credit score, steady employment history, and financial assets, such as a five-figure bank account or a house. In most cases, that will mean a parent will have to act as a co-signer or even take the loan in their own name.
A loan is a business agreement based on a lender charging interest for you to borrow money. The lower the interest rate and shorter the loan period, the less extra you have to pay in finance charges. The best solution may be to borrow from a family member, repaying them a fair interest rate that they would have seen from their savings account. That would save paperwork, keep the money in the family, and hopefully allow payment flexibility.
Do your homework
With a budget in mind, now comes the fun part: creating a short list of target vehicles. Focus on practical choices — cars that will minimize ownership costs and suit your needs for the next few years.
To right-size your costs, resist the temptation to target sporty, luxury, or large vehicles. Such models would probably lead to your college fund being tapped to cover insurance, maintenance, and fuel costs. Instead, look to small sedans and hatchbacks from mainstream brands, or even better, midsized sedans.
It can be tempting to lust after a high-horsepower car or one with the latest-and-greatest high-tech features, but be practical. Money may be made from trees, but it sure doesn't grow on them. The insurance company will penalize a young driver in a sporty car; big engines cost more to fuel and maintain; and gee-whiz features tend to carry reliability risks. Plus, financed new cars will command higher insurance premiums to cover collision protection. It may not be the most fun advice, but simple is best.
To reduce the risk of purchasing a trouble-prone vehicle, identify models with a good reliability record before you begin shopping. Consumer Reports collects data on more than a million cars a year to present reliability information covering the past decade. Such data can point you to cars that have been shown to hold up well over time. Reliability is a key factor, as it speaks to potential costs and inconvenience.
Read professional and owner reviews of the cars you're considering. Balance the different perspectives against your preferences, and use the feedback to highlight aspects that warrant closer attention. For instance, complaints about the seat comfort or ride quality can be evaluated on a test drive. Your opinions may differ from those held by others. And ultimately, it is you who will live with the car.
Must-See on MSN
As a veteran in the car business, I agree with most of this article. There are a few dealerships scattered in our country that still do business the old fashioned way and make the whole experience fun and enjoyable. There is a difference between bouncing a customer off the ceiling up front and then waiting for them to bawk so you can overcome their objections, or treating them with respect and allowing them to make and educated decision. Car buying should not be extremely confrontational, and it definitely should not be like going to combat, your spending a lot of money.
As a customer, look for a friendly salesperson that's willing to help and ask you questions to find you the right vehicle. He/she should also be able to answer any of your questions or be willing to find out. Salespeople will ask what your budget is because they don't want to get you to fall in love with a car or truck that won't meet your payment or price expectations. They may discuss your credit history, if there are issues tell them up front. A salesman is not pushy if he/she asks for the sale, it's their job and they will never sell anything if they don't.
If you feel uncomfortable in the process get up and leave, find another salesperson or dealership. Most importantly, do not buy a car you do not like for the wrong reasons. You will regret it and trade it off within 6 months.
Remember the car that you like and want to think about to buy tomorrow, someone already looked at it and will buy today. You are not the only customer and your salesman is not the only salesman.
Please do not go in to a dealership with chip on your shoulder expecting the worst, because it will be.
Most dealerships offer Certified Pre-owned Vehicles. At Volkswagen, where I work. The CPO is the cream of the crop of our pre-owned vehicle. The cars are put through a 112 Point Inspection, they have Road Side Assistance, 2 Keys, Tires and Brakes are over 50%, they are serviced... They also have an additional 2 year or 24,000 mile Warranty from Volkswagen. Our manufacturer has a transferable warranty, and the CPO warranty start when the Original New Car Warranty ends...
Not all New car warranties are transferable... Research it before you go in.
1) Buying used is not always the best routs. Banks will loan money more quickly and at a lower rate on a new car. If the car is more than 5 years old, financing may be nearly impossible to secure.
Also, with a new car, leasing is a great possibility. Leasing is fundamentally different that it used to be. There is no downside to leasing. If your co-signer has the credit to qualify, your payment on a lease will be substantially lower. In 3-4 years, you will have completed the terms so you get off your parent's credit train more quickly. Best of all, you will have options. You can trade it in (NEVER turn in a lease unless the car is worth substantially less than the residual value) on a new car with more features, or finance the residual value and keep it.
2) A parental co-signer is the absolute best bet. Kids, just don't be a jerk: make your payments on time, every time. If you do, both your own and your co-signer's credit score will benefit.
If at all possible, even if it raises your payment, do not let your parents put the loan in their name only. If you do, you are making payments but not improving your credit score. As a first time buyer, when you buy a car, expect that part of what you are purchasing is improved credit. Pay more to make it a co-signed loan. In the end, you WILL benefit.
Similarly, borrowing from a bank WILL cost more than borrowing from a relative, but your relative won't be reporting your payments to a credit bureau and improving your score.
3) Even if you qualify for zero-down financing, don't take it unless you have to have a car NOW and you don't have the money. If you finance with zero $ down, your taxes, state fees, dealer fees, will all be rolled into the financed amount. That means you are paying interest on taxes and fees. How smart does that sound? If at all possible, at the very least, put the tag/tag/fees amount down.