6 Steps to Buying Your First Car

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Beginner's Guide to Buying Your First Car

By Allison Martin

There's nothing more exciting than the thought of cruising down the highway in the driver's seat of your new car.

No more carpools and public transportation; just you and your new ride.

But it takes a little time and effort to make those dreams a reality. You don't want to be bamboozled by a slick car salesman. Following is a step-by-step approach to buying your first set of wheels.

Step 1: Know your dough. Resist the temptation to ride in style and instead stick with a realistic budget that won't put you in a bind each month. As Money Talks News founder Stacy Johnson says, "Cars are for transportation, not status."

Consumer Reports recommends you zero in on two figures that will dictate how much car you can afford:
  • What is your down payment? Since this is your first car, you won't have a trade-in. However, a down payment of 20 percent will put a noticeable dent in the size of your monthly payments.
  • What is your monthly payment? CR says your total monthly debt load should not exceed 36 percent of your gross monthly income. So figure out your monthly income and subtract all monthly debts and other costs. What's left is how much you can reasonably afford to spend on a car.
An affordability calculator, such as the ones offered by Cars.com and Edmunds.com, will help you figure out how much a car payment will set you back each month. Taxes and registration should be figured into your total. And don't forget car insurance costs.

However, don't focus solely on the monthly cost. That car salesman will try to talk you into a lengthy payment plan that lowers your monthly payment, but costs you much more in interest over time. When you arrive at the dealership, have a set total price in mind and stick to it.

Step 2: Arrange financing. Never walk into a dealership without financing already preapproved by a lender.

Compare rates you find online with those offered by local financial institutions. You may find that you'll get the best rate from a credit union.

You may also learn from lenders that you'll get a better interest rate if you wait and take steps to improve your credit score before you apply. See: "10 Ways to Raise Your Credit Score Fast."

Step 3: Do your homework. Assess your needs, not your wants. A two-passenger convertible may be more fun, but it won't work if you'll be traveling with a family of four. And if you commute 30 miles in heavy traffic, don't buy a gas hog.

Look for vehicles with a strong track record of reliability and affordable maintenance. These sites will help you rate a car's reliability: Read online reviews from industry experts and owners to get a better feel for the cars that make your final cut.

Step 4: Take your prospects for a spin. Head to the dealership or lot to test-drive your top picks. This is your opportunity to see if you and your family will be comfortable in the car, and whether its performance and handling meet your expectations.

Bring along a checklist to evaluate the vehicle. Here are some good sources: Step 5: Have the vehicle inspected. A brand-new car will be protected by a warranty. (See: "Are You Driving a Lemon?")

Looking to buy used? Have the car inspected by a trusted mechanic before you buy. A good mechanic can spot problems that require costly repairs or affect the car's safety systems.

Step 6: Negotiate the sale price. As we said, a car salesman will focus on the monthly payment, rather than the total cost. Keep your price firmly in mind. See: "10 Tips for Buying Your Next Car for Less."

Consumer Reports recommends skipping extras such as rust-proofing, fabric protection and an extended warranty. CR says they aren't necessary.

Nervous about face-to-face negotiations? The dealership's Internet sales department is an option that can ease your worries and save you money. Edmunds.com notes:

There's no question that using the Internet department saves time and stress. When buyers are shopping in person at a dealership, they run the risk of making costly, spur-of-the-moment decisions on financing or additional products, such as extended warranties. Working via the Internet department minimizes that risk. It also is good for people who don't have an appetite for negotiations.

If you can't reach an acceptable agreement with the seller, take your business elsewhere.

Remember when you bought your first car? What did you learn that can help others? Share your thoughts in our Forums. It's a place where you can swap questions and answers on money-related matters, life hacks and ingenious ways to save.

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