Before you reach for your wallet and accept the keys to your first car, take a moment to step back from the allure of the shiny new ride. Buying your first car can come with a few hurdles and challenges, and new buyers can benefit from considering all the options, from places to purchase, to financing tips, to insurance considerations before signing.
According to a survey conducted by The Zebra, an insurance comparison company, 31.3% of Americans were given a hand-me-down vehicle as their first car from an older sibling or parent, but 13.9% purchased their first car themselves. Some are opting for electric cars, while 33% of those in the survey buying their own first car called it an “old beater.”
Before you take your first car out for a spin, or take it home for good, consider these insights from Alex Bean, Senior Manager, Retail and Commercial Strategy at TD Auto Finance.
Think about the type of car you need and keep the future in mind
“Really think about what type of car you need, and sometimes that may be different from what type of car you want,” Alex said. He recommends considering what you will need in a couple of years, not just today.
“For example, if someone's looking to grow their family in the next couple of years, the two-door sports car may not make sense. It's very expensive to flip in and out of cars. So, when you're a first-time car buyer, you really want to get a car that's going to last you a few years, rather than one that you're going to go back to replace shortly.”
Consider the terms of the car loan
While some people might be able to purchase a car outright, many people need financing through an auto loan. These loans range from 12 to 72 months or more, but buyers should carefully consider the terms of the loan to ensure they get the best possible deal.
“Longer terms make the monthly payment easier to handle, but the downside is longer terms often have higher interest rates than lower terms. You will want to look at what works for your personal situation – a lower payment that comes with a longer term, or a more competitive interest rate with a shorter term,” Alex said.
Budget for other expenses besides your car payment
Just like buying a house, it’s far from just the house you are paying for — something breaks, or you need to paint, or you didn’t realize how much property taxes are. It’s the same for cars. They come with additional expenses much beyond the car purchase itself.
“You've got to factor in insurance, annual registration fees, fuel and maintenance costs, too,” Alex says. “You really have to think about whether this makes sense long term and can I afford that payment today.”
He recommends making a budget, determining estimated costs per month and year of each of these expenses, and doing your research about insurance costs before overcommitting your budget.”
Buying from a car dealer has its perks
A critical factor is deciding where to look for a car, especially with so many options available. You can buy outright from an independent seller, such as on Facebook Marketplace or a car buying website. You can go to a used or new car dealership and possibly consider leasing. Alex recommends car dealerships as the best option.
“The biggest benefit for going to the dealer is you've got that relationship for the future. If you've got maintenance issues or problems with the car, you've got a place to go,” Alex said. “Dealerships are going to take care of the titling and the paperwork for you. If you buy from a third party, you're on your own to navigate that system with both the seller as well as the DMV or your Secretary of State for the actual titling work.” That can be a lot for new buyers to deal with on their own.
Consider used versus new cars
It doesn’t have to be an “old beater” like the survey participants shared. Used cars that have been well maintained offer potential benefits in terms of savings. However, some used cars could have a higher risk of needing repairs or maintenance soon after purchasing.
“The biggest benefit of a new car is that new cars come with a warranty. There's probably a little bit more peace of mind up front that it's brand new. If there are any mechanical issues, you can easily take it to get fixed,” Alex said. “However, especially in the market we are in, there's not a lot of entry level new vehicles out there anymore for a first-time buyer. A lot of first-time buyers probably are looking at that used car market. You want to consider that the cheapest used car may have higher mileage and may require more maintenance costs in the future. Maybe a newer, more gently used car gives you that balance between less maintenance and a little bit higher price.”
Special considerations for parents purchasing their teen’s first car
Getting a driver's license is a special moment for many teens, and for some, it means parents and kids working together to help the teen with their first car purchase. But parents should keep a few things in mind.
“Parents should be aware that when they co-sign, they're equally responsible for the vehicle. They definitely want to make sure that they have the conversation with who they’re co-signing with ahead of time to understand responsibilities and accountability for both parties,” Alex said.
In addition, parents might ask teens to split or pay for insurance and gas, as insurance for young drivers can be more costly than parents are used to for their own insurance costs. Parents can also utilize apps like Life360, a tracking app letting parents know where teens have driven, for additional peace of mind.
As with any major decision, it might be beneficial to create a pro-con list tailored to your own specific opinions, considerations, and details. After all, the last thing you want to compromise on is the safety and reliability of the car you will likely drive for a decade or more.
For more on personal finance topics
If you have more questions about personal finance topics that matter to you, visit the Learning Center on TD Bank’s website. You can find out more information about TD Bank's services at td.com.
We hope you found this helpful. This article is for informational purposes only and is based on information available as of August 2024 and is subject to change. This content is not intended to be used or acted upon with respect to any client's specific circumstances. For specific advice about your unique circumstances, consider talking with your qualified professionals.
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