How to Buy Your First Car in 9 Simple Steps

Along with leaving school or going to college, buying your first car is one of the most exciting times in any young person’s life. But if you’re itching to get behind the wheel, hold up a little!

No matter what stage of life you’re in, buying a car is a huge financial decision and not everyone gets lucky with a family member offering a great deal.

Inexperience is not your friend when you talk to car dealers. They have a lot of tricks up their sleeve, so the research you do now will help you make a better choice. 

Here, we take you through the nine steps for buying your first car so that you get the right deal:

1. Set a reasonable budget

2. Save a sizable down payment

3. Check your credit history

4. Compare and compile a shortlist of cars

5. Secure pre-qualification for financing 

6. Approach reliable dealers

7. Be prepared to negotiate – and walk away

8. Resist the upsell

9. Get the insurance, registration and other paperwork in order

Let’s get straight into them…

Follow these steps before you even speak to a dealer…

1. Set a reasonable budget

The money question is always important for a first car — how much will you need? How much can you afford? Should you wait until you can save more?

The average cost of  a new car in November 2022 was $48,681 – a record high in the US. Even a used car will set you back an average of $30,000-$40,000 total, depending on your location.

Most first-time buyers will need finance. That’s likely to mean average monthly payments of around $720 per month for a new car and $525 for a used car, depending on the loan term.

Factor in the monthly running costs, such as gas, registration, maintenance, repairs, parking and insurance (which may be especially significant for young drivers) as well as the sale price.

Do you have the monthly income to support the car you want or should you scale back your expectations? There are plenty of online car loan calculators to help you settle on a monthly payment that you’re comfortable with.

2. Save a sizable down payment

When you buy your first car, the higher the down payment you can manage, the less you will owe on the loan and the less interest you will pay.

A good benchmark for a down payment is 20 percent of the purchase price so, for a vehicle that costs $15,000, you’ll first need to save $2,500.

Saving for a larger down payment is generally a wise choice, unless the deal is just too good to wait. Often, making a lower down payment means a worse overall deal with your lender.

3. Check your credit history (and try to improve the score)

Before you buy your first car, check out your credit history as this will affect whether you get financing and if so, what type of deal you’ll get.

For a first car, most people don’t have an extensive credit history as they’ve had few financial investments. That makes you a risk in the eyes of the lender. 

Check your credit score for free here and if it’s below 700, try to take steps to increase your total credit score. This can help you secure a better interest rate with your lender.

4. Compare and compile a shortlist of cars

When you start researching cars, you’ll likely focus on the sale price, make, model, size and color. Consider other factors that affect long-term suitability, including:

• Durability

• Safety (like airbags)

• Fuel economy

You’ll also need to decide if you’re buying a new or used first car. A used car that is certified pre-owned (CPO) may provide better value but your choice will largely depend on your budget.

There are loads of online resources to help you start comparing cars and compiling your shortlist as you prepare to approach dealers.

Now it’s time to get serious about buying your first car…

5. Secure pre-qualification for financing 

Most people can’t pay for their new car outright, so once you’ve decided to buy, it’s time to secure financing.

Financing options are usually available from credit unions, dealers and online lenders as well as banks. Recent college graduates may be able to find a dealership or auto manufacturer that offers special financing programs for graduates.

Save time and disappointment by securing pre-qualification for financing through a lender — either online or over the phone. Not all lenders offer pre-qualification but, if you do go through the process, you’ll need to supply debt, income and asset information, as well as employment information and other personal details.

The lender will provide an estimate of how much you can borrow. It is not a definitive “yes, we’ll lend you this” but it’s usually a good indication of what to expect with loan amounts, rates and terms.

IMPORTANT: Applying for multiple auto loans in a short period of time may negatively impact your credit score. It’s best to get everything in order with your credit and the documentation you need before applying for financing.

If you can’t get approval or the loan terms are too troublesome, consider saving a bigger downpayment, improving your credit score, asking a relative to co-sign the loan or choosing a car subscription service (which may be more affordable for you).

6. Approach reliable dealers

Only now — after many planning steps — are you ready to buy your first car.

Whether you decide to do that online or in person, you’ll need a reputable and reliable dealer. Many people start online (dealers often post their inventory list on their websites) but will need to talk to someone in person, see the car in the flesh and test-drive it.

You can fact-check what the dealer says with online data and reviews of the specific car you’re targeting.

Remember, the total cost of buying a car is more than the sticker price. Don’t be sucked into a deal that looks too good to be true. The out-the-door price includes everything (taxes, fees, etc.). 

Sometimes you can take advantage of seasonal sales but also consider other practical concerns besides the sale price, such as fuel consumption and whether it fits in your garage.

If you’re using a national dealer and the car is not available locally, you’re usually given a week or so to test-drive the car and get a mechanic to inspect it.

7. Be prepared to negotiate — and walk away

Car salesmen use a variety of tactics that they don’t want you to know about. Being prepared for these tactics will put you in a stronger position to negotiate effectively.

The better your credit history and financial position, the better your negotiation position will be. Understand what you can negotiate and the questions to ask. For instance, some key questions for a used car might be:

• Can I get an independent, pre-purchase inspection?

• What else is included with the car?

• Can you provide a vehicle history report?

Keep the emotion out of the deal even if it’s your dream car. Be prepared to walk away if can’t get the deal you want (and can afford) or you may make a decision you’ll quickly regret.

8. Resist the upsell

One of the strategies used by car salesmen is to upsell a buyer once the deal has been agreed upon. 

Being aware of this can help you resist offers you probably don’t need, such as alarm systems, paint and fabric protection and pre-paid maintenance plans.

Say “no” to these options if you’re working with a limited budget. You can always add anything you need later.

There’s one more step to take before you’re done — and it’s an important one.

9. Get the insurance, registration and other paperwork in order

You’ll need insurance, the title to your vehicle, the bill of sale and temporary tags before you drive off the lot.

Before you’re fully legal, you’ll also need to register your car to receive your license plate, registration card and sticker (if your state uses stickers). You get a 30-day grace period to register your car and pay the fee.

If you buy from a car dealership, the dealer is likely to organize most of the paperwork but remember that when you renew your registration, that will be on you.

If you buy a used car from a private seller, you’ll probably have to handle the paperwork. Start by visiting your state’s Department of Motor Vehicles (DMV) or transportation agency website to find out what you’ll need.

Lastly, check the maintenance schedule for your car so that you know when checkups are due for your recent purchase.