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If you're just starting out, your first car will probably be your largest purchase to date. That makes it the most important financial decision of your life. So you'll want to make sure to choose a car that fits your budget, without sacrificing quality or safety. Here are five things to consider when buying your first car.
1. Be realistic
Most people don't buy a luxury car the first time around. You'll want to set a realistic budget to meet your monthly payments.
Or, if you can afford it, you can pay for the entire car upfront with cash. If you've managed to save enough or are lucky enough have a windfall to spend, you can avoid car payments and just calculate your budget for fuel, insurance, and maintenance. Either way, think about whether you need any extra features, like an extended warranty or special detailing, and skip those options if you find them unnecessary or can't afford them.
2. Shop for auto insurance
Most states requires auto insurance. Typically, they'll require just liability insurance, which covers damages and injuries to the other driver if you're at fault. But you might want to go with comprehensive coverage if you're buying a newer vehicle, to cover yourself in case of damage. Base your decision on the following:
- Level of coverage: Decide what level of coverage you need, whether it's minimum coverage, basic, extended, or premium. Depending on what level you choose, you can have lower deductibles, or coverage for a rental car, towing, glass repairs, and so on.
- Financial strength: Sources such as A.M. Best can help you gauge whether a given insurer will be reliable when it's time to make a claim.
- Price: Make sure you compare quotes across carriers to get the best deal possible. A recent study by NerdWallet found that American drivers on average overpay for car insurance by $368 each year. Rates also can vary among carriers for the same location, so it pays to compare. To make it easier to learn which insurance company is likely to give you the best price, use features such as NerdWallet's comparison tool, which gives you free estimates without collecting personal information.
- Service: Note your own interactions with insurers, as well as information from your state insurance agency and other customers (if they post online complaints, for instance), to gauge the level of service you can expect from the company.
- Look for discounts: While the level of insurance you select should depend on your financial situation, location, and vehicle, it's better to go a little overboard than the other way around. That said, ask about any discounts, such as those for automatic payments or for driving below a certain mileage threshold, or any good student discounts.
3. Find a co-signer
If you're in your early 20s or younger, you might need a co-signer to get a car, because it's possible that your current credit history won't qualify you for a loan on your own. Having a co-signer might also help you get lower interest rates and better terms. But remember that if you get a co-signer and you fail to make your payments, the co-signer will be legally responsible for the cost, so make sure you have enough to make your monthly payments. A co-signer also might have to share legal liability if you get involved in an accident.
4. Double-check used cars
Used cars are cheaper for a reason: They tend to have more wear and tear. So it pays to be extra careful when choosing one. Be sure to check the following:
- Research the vehicle's history via Carfax or a similar source.
- Carefully read the dealer's return policy.
- Check if the mileage disclosures match the odometer reading on the car.
- See if the car has any recalled parts or safety defects by checking the NHTSA's online database by using the car's vehicle identification number. (Every car has a VIN.) If you see that there were recalls made on parts of the car, ask the seller for proof of the repairs.
- Have the car inspected by an independent mechanic before buying.
5. Bring a second set of eyes
Whether you're intimidated by the thought of a high-pressure salesperson or you're worried you'll lose self-control, strongly consider bringing someone with you. A mechanic friend would be a great choice, but even an experienced car-buyer like a parent could be highly useful. He or she can help you remember details about the car, figure out whether you're getting a fair offer, and spot pros and cons you might miss.
Your first car should be a reliable vehicle that doesn't break the bank. With this in mind, set a realistic budget and stick to it. Also shop for insurance beforehand, so you know whether you can actually afford a given car. Keep safety in mind as well, especially when shopping for a used car.
Finally, bring a family member or friend with you to limit the chance of making a poor decision. Doing that will also make the purchase less intimidating, which should make things a lot easier!
Read more from NerdWallet:
- Comprehensive Auto Insurance: Is It Worth It?
- Allstate vs. Geico vs. Progressive vs. State Farm: Which is the Best Insurance Company for You?
- Esurance vs Allstate: Reviewing Top Insurance Providers