The first car I bought was a Honda Accord. I was a starving college student and didn’t believe I had many options available. Looking back, I admit I did everything wrong. Ill-prepared and naïve, I bought a car from a co-worker without blinking. My biggest mistake was not preparing for such a large purchase by doing a little research. I assumed it would be a simple transaction, one that would make my busy life easier. Right away, I was faced with expensive repairs and high insurance rates because I hadn’t taken the time to do my homework. With no knowledge of the long-term costs of owning a car, I quickly realized I was in over my head.
Since then, I’ve bought several cars, gaining confidence by talking to others instead of going it alone. Here are a few sage tips I’ve collected from experienced car buyers.
Don’t forget to include the costs of interest and depreciation. Elizabeth, an accounting student, encourages new car buyers to fully understand how interest rates and depreciation work. She confessed that “not doing the math to see how it would affect me in the long run, or how the value of my new car dropped right away. I was saddled with a high rate on my car loan. If I could do it again, I’d compare interest rates and see if it was really worth it.” She paid no attention to her credit, unaware of how important a good credit score was–a higher credit score can lower interest rates.
In addition to loan costs, Elizabeth points out that new cars decrease in value dramatically in the first year. When she traded her car for a newer model, she was shocked to discover she was actually paying for two cars—settling up the balance owed on her first car in addition to what she was borrowing for the new one. If you use this handy tool to calculate the depreciation of your new car plus the interest you will be coughing up, you can see how the purchase pencils out over the term of the loan.
Old versus new? Sometimes a pre-owned model is a better investment. Dana remembers her first car fondly. “It was a used ‘93 Ford Fiesta. Forest green. I had to learn to drive a stickshift before I could drive it home.” She suggests not getting your heart set on a new car, but cautions that interest rates for used cars can be higher than new ones, which can be more important than upfront costs over a longer-term loan. Whether you choose a new or a pre-owned vehicle, make sure you weigh both options equally.
Can you afford the maintenance and repairs? My friend, Terry, insists that any vehicle you purchase should first be inspected by a qualified mechanic–repairs can be very expensive. Like me, Terry was barely out of high school when he bought his first used car from a neighbor. He learned how to do basic repairs and maintenance out of necessity, but wishes he’d been aware of the pitfalls of buying someone else’s car. Find out which models are cheaper to maintain. Look for reviews that compare how different models hold up over time. Think of maintenance as an investment in your car’s health. Regular oil changes not only extend the life of your car, but reduce costs, such as fuel. Taking care of your car also helps retain its resale value.
Take insurance seriously. Do you know what affects your coverage? Insurance is one of the most expensive costs of car ownership, aside from the vehicle itself. When I asked Caren, a working mother of two young adults, about her first car buying experience, she said she wished she had known more about insurance – especially the coverage options. The type of car you choose can influence how much you spend. For instance, analyze the cost of two-door versus four-door models, or vehicles with safety features such as anti-lock brakes or anti-theft devices. Use your insurance agent as a resource and ask what discounts are available, as well as how rates are calculated.
Know your budget—don’t buy too much car. James was so proud of his first “real” job. As soon as the paychecks started rolling in, he bought a fancy new Corvette without adding up his monthly expenses, forgetting to include insurance, maintenance and the cost of gas. As a young man looking toward the future, his dream car became a burden and kept him from other important pursuits like school or getting his own place. After a couple of years, he was forced to settle for a more economical car that didn’t stress his finances.
Negotiate! Victoria is grateful for her father’s insistence that she learn the art of negotiation before walking onto a car lot. He cautioned that in order to be taken seriously, she must strike a balance between taking a strong stand and being an excellent listener. “Ask for the stars and hope for the moon. Don’t be afraid to walk away if you don’t get what you want,” she urges. “Repeat back what you hear. Take it slow, don’t fall for the pressure techniques of the salesperson. And never buy a car on the first visit. It gives you time to check prices.” While you’re looking at the price tag, don’t be duped by extended warranties that only pad the pockets of the sales people. Beware of unnecessary add-ons, where car dealers make their most profit.
Be prepared. Ana is a self-employed personal chef on a tight budget. Her best advice? Secure financing and insurance before you shop. With the internet at your fingertips, it doesn’t take long to compare rates and arm yourself with vital information that can dramatically affect your final decision.
This post was written as part of the Allstate Influencer Program and sponsored by Allstate. All opinions are mine. As the nation’s largest publicly held personal lines insurer, Allstate is dedicated not only to protecting what matters most–but to guiding people to live the Good Life, every day.