01Be Savvy: Know How to Select the Right Car
Selecting the right car might be the most important part of your car buying journey. Jumping from car purchase to car purchase is one of the biggest financial mistakes you can make especially as a young buyer. Cars are expensive. They also depreciate very fast. Switching cars in a short period of time can leave you flat broke.
You probably already have an idea what kind of vehicle you are interested in buying. Make sure you have the details all hammered out.
- Budget Friendly: Do not blow your budget on a car. Knowing how much a car you can afford is very important. Factor in both your car payment and car insurance costs. Use a car loan calculator to determine your monthly payments.
- Fuel Economy: Not everyone is concerned with fuel economy. However, it is something to consider if you have a long commute back and forth to school or work.
- The Right Number of Seats: Considering expanding your family in the near future? Are your kids getting to the age of wanting to go places with their friends? A five-passenger vehicle might not be enough. You really need to think a little into the future on this one. Like I mentioned earlier, you do not want to be car hunting again in a short period of time.
- Towing Capabilities: Something to consider when choosing a vehicle is its towing capabilities. If a camper, boat, or trailer are in your future, you will want to be able to tow it. Tow kits can be added on at a later time, but you will want to make sure your vehicle is capable of the job.
- Safety: Dual airbags, curtain airbags, blind spot sensors, parking assistant, crash ratings and even more safety features are available. Safety is always important and it is good to keep in mind because car insurance carriers love safety features.
- Maintenance: Some vehicles cost more to maintain than others. Do a little research about maintaining your new car purchase before committing to it. Maintenance can include what kind of gas the vehicle takes, to oil changes, to how much parts cost.
- High Tech Options: Navigation and seat warmers are nice but it needs to fit your budget.
02Be Smart: Know How to Get the Best Financing
Everyone wants a good deal when purchasing a car. Part of a good deal is good financing. Knowing where to get a car loan is the first step. The best rates are usually offered either through a credit union or dealer financing depending on your credit score. The length of the loan you select is just as important as the interest rate you lock in.
If there truly were a "best" place to get financing, all the other options would go out of business. It varies where the best deal is depending on what is available and what your credit score qualifies you for. Many people swear by credit unions, but you might find a better deal at the dealership.
What Determines Interest Rates?
The three main factors which determine the interest rate you get are where you get the loan (which we already talked about), your timing, and your credit score.
- Timing: Rates go up and down. There was a time when a zero percent interest loan on a car was unheard of. If you are thinking of purchasing a car, be aware of the rates but I would not hold off on buying for rates to go down because they could go up!
- Credit Score: If you are not sure about your credit score, you can run it for free on your own through AnnualCreditReport.com. Some people do not want to run the report on their own so they start at a credit union or bank so they do not have to deal with the car salesman yet. Once you have your credit score ran for an actual loan, your score could go down a couple of points. Typically, it is assumed you will shop around for a short period of time and multiple checks will not continually lower your score. The point is, do not have an auto lender run your score unless you are fairly certain you are going to follow through on the car buying process. Learn what affects your credit score to help improve your credit rating.
How Long Should You Finance Your Car For?
It really depends on who you ask how long to finance for. Several options are available and each has pros and cons. The length of a car loan is usually written in months. Common lengths include 24 months, 36 months, 48 months, 60 months, 72 and even 84 months.
- Short Term Loans (24 — 48 months): Great for keeping up with or staying ahead of the vehicle's depreciation. Sometimes lower interest rates are offered for short-term loans.
- Average Term Loan (60 months): Still the most common loan term but losing ground to longer-term loans.
- Long Term Loan (over 60 months): You will most likely owe more than what the car is worth with a long-term loan. Interest rates are often higher. Many people still prefer this option because of the lower monthly payment.
03Be Skilled: Know How to Get the Best Car Insurance Policy
A big mistake many car buyers make is not figuring in the cost of car insurance. Since we are talking about buying your first car, it is possible this is the first time you are getting your own car insurance policy.
Coverage to Consider
- Preferred Limits of Liability 100/300/100: Liability protects you when you damage someone else's property or injure another person. 100/300/100 is the preferred limits and insurance carriers often reward drivers with lower rates for keeping the preferred limits. Each state has its own set of minimum limits required to drive by law. Failure to have car insurance coverage often results in hefty fees.
- Medical Coverage: Primary health insurance if covering injuries from car accidents less and less. Medical coverage protects you and your passengers when injured in a car accident.
- Comprehensive: Physical damage to your car can occur in many different ways. Comprehensive coverage provides protection against fire, theft, vandalism, animals, and storm damage. Anything other than a collision. Comprehensive is usually only a requirement if you have a loan on the vehicle.
- Collision: Plan on getting into a car accident? Well, nobody ever plans that but every car on the road is at risk. Collision coverage will help repair your vehicle when you are in a car accident with another car or inanimate object.
A deductible is an amount you pay out of pocket when your vehicle needs to be repaired after a covered accident. Medical coverage also often comes with a deductible. The higher the deductible you select, the lower your car insurance costs. Have the insurance agent quote a couple of different deductibles so you can see how if affects your car insurance coverage.
Getting on your own car insurance policy can be intimidating and expensive. A great place to start is the same agency your parents are insured. The agent will already have all of your information, you will only need to provide the year, make and model of your vehicle.
Bonus — If you use your parents' insurance agency, you can save a lot of money. Do your parents have their home insured through the same agency? You might be able to get the multi-policy discount on your car insurance policy. You might even be able to get the multi-car discount by coordinating with your parents' policy. Those are the two best discounts available. If you are able to get them, you probably do not even have to shop other insurance carriers. The will not be able to beat it.
Best advice for getting a new car insurance policy with no prior coverage is to shop around. Rates can vary a lot from insurance carrier to insurance carrier. Most states allow insurance companies to charge a higher rate to people who do not have prior car insurance coverage. That means you could be required to pay a higher rate for the first six months. After the introductory time period, it is a good idea to shop around for a lower rate.
Car insurance can be a huge expense especially for drivers who do not have prior coverage. Make sure to get a quote before sitting down with the car dealer.
Add the Loss Payee
Take care of this step when you are setting up your car insurance and it can save some time and hassle in the future. When you finance a vehicle, the lender will want to be added as a loss payee. Basically, you give the name and address of your lender to your insurance agent, and they will take care of the rest.
Once a lender is added as a loss payee, they will get notifications about your car insurance policy. Remove a coverage, change your deductible, or even miss a payment and your lender will be notified automatically by mail. Lenders want to know this information because it is usually part of the loan contract to keep car insurance enforce at all times.
Tips for First Time Car Owners
Buying a car for the first time can certainly be overwhelming. The choices you make throughout the car buying process can affect your financial future for years to come. Doing a little research ahead of your purchase will get you on the right track to being a highly successful car owner.