Becoming a car owner is a big milestone in a person’s life. Whether you got your first car when you turned 16 or you became a driver later in life, nothing beats the freedom of being able to just get in the car and go.
Unfortunately, the shine of owning a vehicle often wears off long before you encounter your first gridlock. It is expensive to own and operate a vehicle. According to a January 2015 USA Todayarticle, on average in 2014 a new car went for $31,831. The average used car sold for about half that, or $16,335.
The costs of car ownership in the U.S. climbs each year. The most recent statistics available from AAA indicate that in 2013 the cost of owning and operating a car increased by about 2% from the previous year. The biggest increase in cost was maintenance, up 11.26% (or costing 4.97 cents per mile). Fuel costs went up 1.93% (14.45 cents per mile), insurance costs went up 2.76% with the average cost per year being $1,029, and depreciation rose .78% reaching an average cost of $3,571 per year.
With these facts in mind, and the rose-colored glasses off, here are five tips for buying your first car on a budget.
5 Budget for the Budget Conscious Car Buyer
#1 Do your research first
There are a large number of websites available to help navigate the car buying process. Research different makes and models so you can set your expectations accordingly. Edmunds.com and KBB.com (Kelley Blue Book) are two of the top resources. Consider what your basic requirements are and try to stay focused on vehicles that fulfill your basic transportation needs.
#2 Factor in cost of ownership
Take into account cost of ownership when planning how much money to spend on a car. Consider fuel efficiency, cost of insurance, cost of replacement parts, and regular oil changes and tune-ups. Edmunds.com has a true cost to own calculator that does the heavy lifting for you on vehicles going back to 2009.
In many cases, the cost to insure used vehicles is less. However, in some instances, the safety features of newer cars make them less expensive to insure. Once you have narrowed your field to a few options, speak to your insurance agent to find out what the insurance cost would look like for your different options.
#3 Buying used is still sound advice
Conventional wisdom dictates that buying used is a savvy consumer move. After all, new cars lose 70% of their resale value in the first four years. However, this wisdom was turned on its head when the US recession dealt a significant blow to automakers and dealerships. With people unable to afford to buy new, the used car market boomed during this time and used car prices increased by around 20% during this time. During the recession, with dealerships offering incentives and low finance rates to attract buyers, buying used wasn’t a given anymore.
Now that the industry has recovered, used car prices are dropping again. In July 2014, new car sales reached levels not seen since 2006 as car buyers’ confidence has improved.
Buying “certified” pre-owned vehicles is one way to take some of the risk out of buying a pre-owned vehicle. CarMax and certified pre-owned dealerships are two of the top resources to buy used cars, according to Edmunds. That said, checking private listings and purchasing from a private party can be the most hassle-free buying experience.
#4 Save your money and buy with cash
As mentioned at the beginning, it’s expensive to purchase and own a car, even a used car. Try to avoid financing a vehicle with a loan if possible, even if it’s at a low interest rate. Car dealerships and manufacturers make it seem like you can’t survive without the latest luxury model, but in reality buying a car you don’t have the money to pay for isn’t a smart decision for your financial well-being.
Monthly car payments can be a big drain. If possible, try to save up to buy your used car with cash. If your living expenses are minimal and you are saving a significant percentage of your income, buy a used car with cash. You will be glad you don’t have a monthly car payment looming over your head for 2 to 5 years.
#5 Be willing to walk away
Whether you end up dealing with a car salesperson or a private-party, being willing to walk away is one of your strongest negotiating positions. Keep several options on the table and try not to get your heart set on a single vehicle.
Cars are expensive – there is no way around that. By doing your research, having realistic expectations and not getting sucked into the hype, you can make a smart car-buying decision that doesn’t break the bank.