Guidelines for Buying Your First Car
When I graduated college in May 2014, so did my ole’ reliable car. I see me driving my friends around in my 2003 Chevy Cavalier, decorated with hail damage (all of our St. Louis readers undoubtedly remember that May 2012 storm well). This Chevy may not have had fancy qualities, but it only had 120,000 miles and I didn’t have a car payment. That was good enough for me! So, when my dad finally sat me down after graduation to coax me into buying a new car, I didn’t take it well. After ten months of working, paying off student loans, and saving money, it was time. Yep, I finally bought a new car!
If you’re debating on whether or not to finance a car, glance over a few tips I learned from my recent experience.
1. Budget: I’m not a budget expert, but I still think about how much car I can afford. Regardless if you can afford a $100,000 car or a $5,000 car, you’re spending a lot of money. Can you afford your payment, insurance, and warranty each month and still cushion your savings account? Your car search should be based around your budget, and be firm at the dealership when negotiating.
2. Research: If you’re not ready to buy, stay away from the dealerships. Ask family and friends about their experiences with their cars, especially if your family buys a particular brand or always purchases from the same dealership. For instance, my family buys Chevrolet from a local dealership, so it definitely gave me some leverage when negotiating. Side note: If your dealer ever sends you a letter thanking you for your loyalty, KEEP IT! I could have saved a lot of money if my dad and sister hadn't thrown away their GM loyalty letters.
Speaking of research, do the research on auto loan rates and incentives. I got a sweet discount through AECU’s partnership with “Love My Credit Union.”
3. Mentally Prepare: Even though I set my budget and did my research, I knew I would have to put on my game face at the dealership. It helps to have a support system, but the key idea is to do it on your own. My dad told me before I went to the dealership that, “All cars are going to be nice at the dealership.” I didn’t really know what that meant until I test drove one. It was then that I realized what he meant: Don’t get suckered into buying the most expensive model, but also don’t be afraid to buy one with a better engine or extra storage space even if it’s more expensive. Explore your options and compare.
4. Know Your Financing Options: You have a few options when buying a car. About a month before I actually bought my car, I emailed Charity Chiltz, one of our Senior Personal Service Counselors. Here’s what she told me:
“When it comes to financing through American Eagle Credit Union, you have two options: direct and indirect. If you want to go directly through American Eagle, you fill out an auto loan application online or at a branch 24-48 hours before you buy. If you don’t know how much you’re going to finance, use an estimate of the maximum amount you want to spend, so you don’t have to go back and apply again for a higher amount. Or, you can go to the dealership and let them know you want to finance your loan with American Eagle and they’ll do the work.”
The biggest benefit of getting preapproved through a direct lending channel is essentially being a cash buyer, but indirect channels don’t require as much work from you as a credit union member. It’s a matter of preference.
5. Mentally prepare...again: After I gave up my down payment, signed my short-term life away (dramatically speaking), and paid my upgraded insurance premium, I thought to myself, “What have I done?!” This is why it’s so critical to have a budget. I know exactly when I’ll be able to pay myself back for the down payment, when I’ll pay my car off, the worst case financial scenario if I should get in a car accident, and how much I’m saving on car repairs having an extended warranty. Don’t let your worries get you down!
Buying a car at 22 can be really tricky, especially with an entry-level salary and other debt. There are loads of personal finance bloggers out there telling you not to buy a car at all, but the best advice I received throughout this process was to calculate the opportunity cost of buying a car vs. keeping an old car.
Are you considering buying a new car soon? We’d love to hear about it. Drop us a line below, or visit www.ameaglecu.org to research what American Eagle Credit Union can offer you in terms of financing.
