Buying your first car can be exciting and overwhelming. As with many financial decisions, research and planning can help you make the best choice for you. But where do you start? These tips can guide you through the process.
1
What kind of car is right for me?
When you start shopping for a car, you’ll probably start by determining which car best fits your lifestyle and the features you’ll find most useful. Make a list of questions that are similar to your specific driving needs. Your answers should help you make a short list of vehicle sizes and types to consider.
Ask yourself:
Do you live in an urban, suburban or more remote rural area?
Depending on the weather in your area, are you likely to need all-wheel drive?
Do you expect to carry a lot of passengers? How much?
Will you be loading and hauling items? This will determine how much cargo space you will need.
Do you need the car primarily for work, daily use or weekend adventures?
How much space do you have to park your car at home and at work?
Whether you are tall, short, or somewhere in between, does the car fit your size comfortably and safely?
2
What is the overall cost of owning a car?
The purchase price is only a portion of the total cost of the car. In addition to monthly payments, you must budget for its use and maintenance – which usually means insurance, maintenance, gas (or electric car charging), repairs and parking.
More from Bank of America
Use Bank of America’s auto loan calculator to learn how a down payment can affect your monthly auto loan payment.
3
New or used car?
A new car, as the name implies, has not been abused or involved in an accident. It has a warranty, the latest safety features, and even the smell of a new car. Not going to love all the things? Well, here’s the price. A new model can run you better than an old one. It also has higher insurance rates. The value of a new car drops dramatically the moment you drive it off the lot.
Since used cars are less expensive, you may be able to upgrade to a better model. Your insurance will be more affordable, and the value of your car will usually drop more slowly than when you bought it new. At the same time, your car is worth less trade-in and is more likely to have maintenance problems. Be sure to ask for a Carfax report that details the history of the used car, including any accidents.
4
What about electric cars?
More and more car buyers are choosing electric vehicles (EVs) as well as hybrids, which combine the power of an electric motor and a gasoline engine. Because both have much lower emissions, they are considered more environmentally friendly than gasoline-powered vehicles.
Other advantages of EVs over gasoline-powered cars are quieter engines and lower fuel costs – depending on the price of gasoline and the price of electricity where you live. While electric cars are often more expensive, rebates and incentive programs (such as tax credits) may help keep costs down.
Electric cars can be charged at home or at public charging stations. Fully charging a car can take as little as 30 minutes and as long as half a day, depending on the size of the battery and the speed of the charging station. In the past few years, finding a charging station has become easier, and most electric vehicles can travel more than 200 miles on a single charge.
In addition to the environmental benefits compared to gas-only vehicles, hybrids allow you to drive in areas where charging stations may not be available with the confidence that you can access a gas station.
5
Should you buy a car online?
Once you have a general idea of the type of vehicle you want, going online can give you access to a wide range of dealers and sellers, both locally and outside your area. This gives you a wider selection of cars in your price range and allows you to do extensive shopping before you step into the showroom. If you’re looking at a new car, ask multiple dealers to give you a quote.
In addition, many digital tools available at dealerships and on GM’s website allow you to fine-tune your research based on price, reliability, safety, incentives, reviews and other factors. These can be a convenient way to buy or even finance a car online.
Did you know?
Requesting a quote from a car dealer will give you the “real price” of the vehicle, reflecting all costs, fees and taxes, not the advertised price.
6
When should you start shopping around for an auto loan?
It may seem counterintuitive to look for an auto loan before you buy a car, but it can be very useful. It gives you an idea of how much you can borrow and at what interest rate, which allows you to avoid rushing into a financing decision at the dealership. Start with your bank or credit union, then get quotes from dealers and other lenders and compare rates to make sure you get the best offer.
In addition to interest rates, consider the term of the loan and how long you think you’ll own the car. When it’s time to sell the car or get a new one, you want to avoid owing more than the car is worth.
Pre-qualification and pre-approval – what’s the difference?
When buying an auto loan, you may hear the terms “pre-qualification” and “pre-approval. Here’s what they mean:
Pre-qualification: The lender reviews your financial information and considers you eligible for a loan. You can get a good idea of where you stand without affecting your credit score. That’s because the review is based on the information you provide or a soft credit pull, which is a check of your credit report for informational purposes only. Pre-qualification does not mean you will automatically be approved. You will still need to complete the formal loan application process.
Pre-approval: A conditional commitment from a lender to lend you money to purchase a vehicle. As part of the pre-approval process, you will undergo a strict credit pull, which is a detailed review of your credit report for loan purposes. A hard pull will lower your credit score, as applying for new credit may cause the lender to view you as a higher risk. It is best not to seek pre-approval until you have committed to purchasing a car within the next 30 days.
7
Will your credit score affect your car purchase?
Your credit score helps determine the interest rate you pay for an auto loan. Better credit may help you get a better rate, which in turn can have an impact on your car buying budget. You can get a free credit score through your credit card provider.
Check your credit report before you’re ready to buy to allow time to improve your credit score. Visit AnnualCreditReport.com to get a free copy of your credit report from each of the three major credit bureaus (Experian, Equifax and TransUnion).
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Are you ready for a test drive?
With all your preparations made, now comes the fun part of the car-buying task – you get to see how the car performs and how you feel about it. After you’ve identified a few cars that might be right for you, try driving them on the same day. You may want to call ahead and make an appointment to make the most efficient use of your time. This will not only allow you to better compare vehicles, but also to better compare each dealership’s customer service.
