Buying your first car (or any car) is both exciting and scary. But learn the golden rule of car shopping and get on the road to happy car ownership.

Buying your first car on your own is both exciting and harrowing. After all, a new car is more than a shiny toy; your first car needs to be a reliable, safe, and affordable.

The Golden Rule of Car Shopping

Before your buy your first car you must learn the golden rule of car shopping: The more you want it, the more it will cost you. Why, exactly? Because the auto industry uses emotion, more than anything else, to sell cars. Think about it. Many recent model Volkswagens have among the worst Consumer Reports reliability ratings, yet continue to be popular cars, especially among young buyers. Why? Because they look cool. But emotion doesn’t just dictate the car models people buy; emotion directly affects how much you pay for your new car.

Car salesmen are trained to do one thing: get you to want a car so badly you will sign for the car’s sticker price before you go home. Think about that. Car salesmen’s jobs are to get your emotions going. They let you drive the car, they tell you how great you look in it, and they make fun of your trade-in. They are trained to keep you waiting for long periods of time so your desire for the new car can grow. And auto showrooms aren’t made of glass to let people see inside. That glass is so you can see all the new cars (and your old one) while you wait! What’s more, the car salesman, typically, does not negotiate the price of the car or handle the details of the financing or registration (managers do). Those in auto sales are compensated by two things: how many cars they can sell (how quickly they can sell you a car), and how much profit they can “hold” on the car (how much above sticker you pay). Therefore, logically, the more time you take and the more research you put into buying a car, the better your deal will get.

How Much Car Can You Afford?

The first step to buying your first car is to determine what car you can afford. You must do this before you set your sights on any particular vehicle. Why? Remember the golden rule. If you start taking test drives or paging through car ads before you have a budget, it will be far to easy to convince yourself you can afford a car later. Most financial planners agree you should not spend more than 20% of your monthly take-home income on transportation. So once you divide your monthly after-tax income by five, you will need to figure out how much you will spend each month on gas, insurance, maintenance, tolls, and parking (all transportation costs). If you sometimes take taxis or public transportation instead of driving, factor those in as well. Once you have subtracted your ancillary transportation expenses from 20% of your monthly income, you have your maximum monthly car payment. Here’s an example for somebody that makes $29,000 a year:

Monthly Income: $1,975
20%: $395
Insurance: ($70)
Gas: ($100)
Maintenance: ($40)
Max Payment: $185

Your monthly payment figure is probably less than you had thought. But that’s good! Believe it or not, somebody with average or better credit can own a reliable car for just $100 a month. Don’t think of your maximum payment as inhibiting what car you can buy, rather freeing up your money to spend on other things.

The Right Car for You

With all of free online automotive research available, it doesn’t make sense to start shopping for your car on the lot. To start try where you can sort and compare cars by a number of different criteria, get full car descriptions and lists of features, and, if you choose, connect with dealers in your area via e-mail.

Look at both new and used cars in your price range and remember that buying a new car is more costly than buying a used car because of how quickly a new car depreciates. That said, used cars inevitably will cost more in maintenance in the first two to three years. New or used, look for a car that you can see yourself driving for a number of years and can provide safe and reliable transportation. If you are leaning toward a new car, investigate the factory warranty (not extended warranties) and reports on initial problems on the year, make, and model you’re considering. If you decide on two or three different cars but can’t narrow it down from your living room, it’s time for a test drive. But don’t get up so fast. You will need to approach the dealerships carefully.

Buying New

Before you go on a test drive you want to get car dealer quotes from multiple dealers for each car you’re considering. Most car research sites make this easy, giving you the option to select dealerships and click submit just once to get multiple quotes on each car model. Prepare to receive a barrage of phone calls and e-mails relatively quickly. Most dealerships have dedicated Internet salespeople standing by to respond to your quote request. The great thing about shopping for a car online is that research sites show you the exact invoice price (what the dealer pays for the car), and how much above that price people in your area are actually paying this. When you approach a dealership from the Internet rather than the street, the sales staff knows you have extra information and will treat you accordingly. (This means they will only lie to you about 90% of the time). Some dealers will come back simply asking to set up a test drive, others will send you a hard quote. Don’t agree to go for a test drive without a hard quote, and always take printed copies of every quote you received with you to the dealership. Shadier dealers may claim to have made a mistake on a quote that you can’t prove you received. Once you have all your quotes in hand take some time to have fun taking test-drives. If you have done your homework and selected a few reliable, safe, and affordable new cars to choose from you can let your tastes make the final selection. Once you have, go home and sleep on it. Never buy a car on your first trip to the dealership. Statistically you will pay more for your car if you do.

Buying Used

The process is slightly different if you choose to buy a used car. You will need to be slightly more flexible about the car you ultimately buy, but you will also have greater pricing flexibility. Not only can you choose from similar cars with different mileage (and prices), dealers have a much higher profit margin on used cars, meaning there is more room for negotiation. To begin the final selection process for a used car, find between five and ten cars that interest you and meet your price, safety, and reliability requirements. Request quotes online from the dealers and choose three to five to test drive. As with a new car, never buy a car on your first visit to the dealership. Have just one night to think over your potential purchase could save you from getting stuck with a lemon for five years. A final step in buying a used car is running a title history report and/or getting an independent mechanic to inspect the car for you. Any reputable seller will allow you to take the car to a mechanic for a quick check, and you should. If you have a good relationship with your mechanic he will probably do this for free. Otherwise expect to pay between $20 and $50.

Have you chosen the car you want to buy? Congratulations! Before you return to the dealership to make a deal, learn secrets of an ex-car salesman and how to negotiate with car salesmen like a pro!

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About the author

Total Articles: 75
David Weliver is the founder of Money Under 30. He's a cited authority on personal finance and the unique money issues he faced during his first two decades as an adult. He lives in Maine with his wife and two children.