Many young adults today work and ride public transportation all the way through college. Whereas others use a family car during their early driving years. In either case, this means that many people are well into their twenties before they decide on the best first car to buy. Buying your first car can be difficult and confusing and because of this, I am going to give you some tips to keep in mind when buying your first car.
Strongly Consider Buying Used
On average, a new car loses 11% of its value the moment you leave the lot. Every following year for the next 5 years, the car depreciates by 15% to 25%. And after five years, a car is worth just 37% of whatever you agreed to pay for it.
If you take out a loan to buy a new car, depreciation means you will likely owe more than it is worth as soon as you drive away in it. This ends up making it a pretty terrible investment of your money. When you come to sell it, you will probably discover that you cannot pay off whatever you owe on the car because of the amount of depreciation your car has already gone through.
With a used car, you are paying for a car that has already done most of its depreciating. This means that you will not have to pay a ton of money for that new car smell and you will make less of a percentage loss when you come to sell it.
Set a Budget, Pick a Car – In that Order
The first thing you need to ask yourself is, “how much am I willing to pay?” It is not exciting, but it will narrow down the field from hundreds of cars to a handful. Keep in mind that budgeting for car ownership is not just about paying the car payment. There are other costs you need to take into consideration as well.
Keep in mind that budgeting for car ownership is not just about paying the car payment. There are a lot of other costs that come along with owning a car too. Here is a basic way to budget for all the costs of owning a car:
- Calculate your basic cost of living. This will include whatever you pay for accommodation, food, health insurance and other spending allowances, like for going out.
- Calculate what is left: what remains after your basic cost of living is covered is what you can spend on your car payment, insurance, gas and maintenance costs.
These are some extra costs and what they might look like:
- Insurance: $80/month – Depends on a variety of factors like age, history and car you have bought.
- Gas and upkeep: $150/month – Depends on how often and how far you drive. The more you use your car the higher this number will be.
Whatever remains is what you can afford to spend on the car payment.
Here are other options to make your car purchase more affordable:
- Lower your monthly car payments by putting more down upfront.
- Find a car from a personal seller or classified ad, you might be able to buy the car outright to avoid the monthly cost.
- Buy a car that needs some work if you or someone you know who can fix cars up. It can end up saving you a bunch of cash.
To conclude, buying your first car can be an exciting experience for any young adults. But just because you are inexperienced, it does not mean you should walk in blind and find yourself in a difficult situation because you did not do your research. Knowledge is power when buying a car so do your best to put yourself in the best position.