So You Wanna Buy a Car . . .
Excerpted from NerdWallet
As a first-time car buyer, it can be very easy to overspend. Here are 5 steps you can take to prevent that from happening.
1. How much car payment can you afford?
2. Know what affects auto loan approval
3. Get loan preapproval and shop rates
4. Figure out what and where you want to buy
5. Prepare for the dealership
1. How much car payment can you afford?
If you won’t be paying cash, you’ll need a car loan. Since you’ll be expected to make monthly payments on an auto loan, first figure out what payment amount fits your budget.
When getting a car loan, you’ll decide on a loan term— which is the length of time you have to repay the loan. Terms are typically 24, 36, 48, 60, 72, and even 84 months. Going with longer terms may sound good because it lowers your monthly car payment. However, you can end up paying much more overall, because you’ll pay loan interest longer.
Also, budget in any expenses you’ll have on top of the monthly loan payment. In 2024, AAA estimated a typical new car buyer with a five-year loan will spend $12,297 a year, including depreciation, loan interest, fuel, insurance, maintenance, and fees. NerdWallet recommends spending less than 10% of your take-home pay on your car payment and less than 15% to 20% on car expenses overall. Remember, you'll be making that payment long after the excitement of buying a car wears off.
2. Know what affects auto loan approval
A common worry for first-time car buyers is, “Will I qualify for a loan?” It’s true that you may have more difficulty getting a loan if you haven’t had loans or credit cards in the past. But you won’t know for certain until you apply. Lenders will pull your credit report to see whether you’ve previously paid credit accounts on time. Even if you have little or no history of credit, you should request a free copy of your credit report to see what lenders are seeing. Lenders will also check your credit score. In general, a good credit score is 690 and above. But people with lower scores may certainly be able to borrow. To improve your chances of getting loan approval, there are steps you can take:
Provide proof of a steady job and income.
Save up and make a larger down payment on the car.
Ask someone with good credit to be a co-signer or co-borrower on your loan.
Regardless of your credit history and score, you can most likely find a lender to approve your loan, but it could be with a very high interest rate.
3. Get loan preapproval and shop rates
Before you start shopping for a car, get preapproved for an auto loan. When you’re preapproved, a lender estimates the amount you will qualify to borrow and at what interest rate. The lender provides preapproval documentation you can take to the dealership or use with some online car retailers.
Getting preapproved for a car loan will help you in two ways: First, knowing what amount you can borrow enables you to shop for cars within your price range and avoid overspending. Second, it gives you numbers for a dealership financing office to beat, if they want to finance the car you buy.
Try to get preapproved with several lenders to find the lowest interest rate you can qualify for and make all applications within a two-week window. Preapproval results in what is called a hard credit inquiry on your credit report, and that can temporarily lower your credit score (if you have one). Loan applications made in a two-week timeframe are counted as a single inquiry, affecting credit scores less.
As a first-time car buyer, you’re unlikely to get the lowest interest rates, but you can still shop around to improve your rate. If you belong to a credit union, that should be your first stop. After that, consider your bank or online auto lenders. And don’t accept financing at the dealership as your only option.
4. Figure out what and where you want to buy
Before you settle on a car, do some research. Browse online sites or visit dealerships outside of business hours and ask yourself questions about what you need and want in a vehicle:
Use: Will you travel long distances and need better gas mileage, or mainly stay close to home?
Size: Will you be more comfortable driving a small car or large SUV? Do you have limited parking space?
Space: Do you need to allow room for children, pets, or hauling items?
Cost: Will a car, which tends to be much cheaper to buy and maintain, fit your budget better than a truck or SUV?
New versus used: Should you buy a new car with a warranty or a used car that could cost more to maintain?
Gas versus electric: Do you want an eco-friendly car with lower fuel costs? Can you pay more up front for an electric car?
Once you have a list of models that catch your eye, do your due diligence. Typically, that will mean you:
Check fuel economy ratings at fueleconomy.gov.
Review Insurance Institute for Highway Safety, or IIHS, ratings at iihs.org.
Compare the relative cost to insure each vehicle.
Check online listings to see what sellers are asking.
Find reliability ratings through Consumer Reports; if you don't subscribe, your local library does.
When you have specific vehicles in mind, think about where you want to shop and possibly buy. You aren’t limited to a car dealership. Online car retailers like are an option to complete the entire process online with no-haggle pricing. Car-buying apps can also simplify the process by offering unique filters and tools. Or, you might get a better deal on a car sold by a private seller.
5. Prepare for the dealership
If you plan to buy a car from a dealership, don’t wander into the showroom without knowing what to expect. Your inexperience can be a great opportunity for a dealer’s salesperson and finance manager to make money.
Before you set foot into a dealership, you should know the maximum monthly car payment you can afford, but don’t allow the dealer to only focus on the payment amount. Insist that the dealership focus on the car’s out-the-door price. This includes the vehicle purchase price, as well as sales tax, documentation fees, delivery and prep charges, registration, loan interest, and any add-on products or services, such as extended warranties.
If you end up getting a car loan through the dealership, carefully review the vehicle contract, which will include financing information. Even if you’re told otherwise, you have the right to receive a copy of the contract with completed Truth in Lending Act disclosures to take with you. That gives you time to review loan terms without feeling pressure to sign quickly.
If you’re concerned about being taken advantage of at a dealership, ask a more experienced car buyer to go with you. You can still make your own decisions, but having the support of someone who knows the ropes can help you make those decisions with more confidence.
Faith & Finance Perspective
It’s far too easy to dive in a little too deeply when purchasing your first—or even second—car. During our teenage years, we see some of our friends cruising around in dream cars—often purchased as graduation gifts by well-intentioned, well-to-do parents, and we picture ourselves behind the wheel.
Whether fantasizing about a need-for-speed muscle car, a luxury SUV, or a cute little convertible Barbie car, we are easily enticed into going too far into debt in fulfilling the ad-enticed, image-elevating, Fast and Furious versions of ourselves. We forget that the main purpose of our vehicles is to get us safely and reliably from point A to point B.
As we grow older, of course, needs change. When we get married and start a family, a bigger car with higher safety ratings is certainly a valid and necessary upgrade. And it would be hard to find fault with the retiree who has labored and saved diligently for half a century to reward him- or herself with that little sports car. But for those of us just starting out, we need to find contentment with the basics and avoid unnecessary debt.
As Ron Blue points out, the consequences of debt are a paradox. Current marketplace wisdom advises us to raise our standard of living by buying what we want and paying for it while we enjoy it. But the reality is that we may be sentencing ourselves to a lower standard of living in the future. As Proverbs 22:7 warns, the borrower is a slave to the lender. Our freedom of choice disappears as lenders insist on getting repaid on time. When we incur debt, the first priority of our future income becomes debt repayment—not saving, investing, or giving, robbing us of our opportunity to be thriving Kingdom stewards.
Keep your lives free from the love of money and be content with what you have, because God has said, “Never will I leave you; never will I forsake you.”
- Hebrews 13:5