Getting your First Car

My first car…

 When buying a car, be it new or used, it’s important to know what type of vehicle will fit your needs best. If you’re on a tight budget and don’t need a lot of room; buying a full size SUV may not be the best way to go. Buy what you need for now while the money is tight...you can always splurge and purchase that new “dream machine” when your finances have improved.
Prior to visiting your local car dealership, do your homework. Once you decide on the type of car you would like to own, go to Consumer Reports online and look for the following:

• What is the maintenance report – have there been many problems with this model?

• Is it the type of car that will have an expensive insurance premium – convertibles, two door, sports car, etc.

• What are the average costs for this new vehicle – know approximately what you should be paying before you go to the showroom!

• Are there any features you can’t live without, like AC in Phoenix or a block heater in Fargo?

• Miles-per-gallon is an important thing for you to consider. You might want to look for a vehicle that can get closer to 40 miles to the gallon instead of 10 to 15.

Know that a new car has its heaviest depreciation (loss of value) in the first two years of ownership so you might want to consider a “new to you” used car.

Buying a New or Used Car with Financing

So you found the car of your dreams but don't know how you are going to pay for it? Well there are a few steps involved in financing.

• Get Your Credit Report: Before you walk into the dealership and apply for financing you need to know what your credit record is like. Too many dealers will trick you into believing your credit report is less than stellar and will try to slide in a higher interest rate.
  
  See our Credit Check page for more information.

• Decide where you will finance: It's convenient to finance through the dealer but many times you are not getting the best interest rate.
  
  Consider the following sources:
  

  a. Credit Unions: If you belong to one, you can usually get much lower interest rates. Credit Unions are there to serve you, not themselves.

  b. Online Lenders: With lower overhead, online lenders can offer you better rates than a dealer.

• Check the fine print: Make sure you will not be penalized for paying off the loan early. Also check the minimum collision coverage required. If you are used to carrying a $1000 deductible and the lender requires a $500 deductible, you could be in for a surprise when the bill shows up.

• If you decide to go to the dealer to arrange the financing, request to see the approval letter from the lending institution. Dealers can mark up the interest rates and earn commission by doing this little trick.

• Before signing: Check the fine print ! Always keep a calculator with you and double check everything.
  
  The differences between leasing and buying.

• Ownership
  
  a.LEASING: You do not own the vehicle. You get to use it but must return it at the end of the lease unless you choose to buy it.
  
  b.BUYING: You own the vehicle and get to keep it at the end of the financing term.
   

• Up-front costs
  
  a. LEASING: Up-front costs may include the first month's payment, a refundable security deposit, a capitalized cost reduction (like a down payment), taxes, registration and other fees, and other charges.
  
  b. BUYING: Up-front costs include the cash price or a down payment, taxes, registration and other fees, and other charges.
   

• Monthly payments
  
  a. LEASING: Monthly lease payments are usually lower than monthly loan payments because you are paying only for the vehicle's depreciation during the lease term, plus rent charges (like interest), taxes, and fees.
  
  b. BUYING: Monthly loan payments are usually higher than monthly lease payments because you are paying for the entire purchase price of the vehicle, plus interest and other finance charges, taxes, and fees.
   

• Early termination
  
  a. LEASING: You are responsible for any early termination charges if you end the lease early.
  
  b. BUYING: You are responsible for any pay-off amount if you end the loan early.
   

• Vehicle return
  
  a. LEASING: You may return the vehicle at lease end, pay any end-of-lease costs, and “walk away.”
  
  b. BUYING: You may have to sell or trade the vehicle when you decide you want a different vehicle.
   

• Future value
  
  a. LEASING: The lessor has the risk of the future market value of the vehicle.
  
  b. BUYING: You have the risk of the vehicle's market value when you trade or sell it.
   

• Mileage
  
  a. LEASING: Most leases limit the number of miles you may drive (often 12,000-15,000 per year). You can negotiate a higher mileage limit and pay a higher monthly payment. You will likely have to pay charges for exceeding those limits if you return the vehicle.
  
  b. BUYING: You may drive as many miles as you want, but higher mileage will lower the vehicle's trade-in or resale value.
   

• Excess wear
  
  a. LEASING: Most leases limit wear to the vehicle during the lease term. You will likely have to pay extra charges for exceeding those limits if you return the vehicle.
  
  b. BUYING: There are no limits or charges for excessive wear to the vehicle, but excessive wear will lower the vehicle's trade-in or resale value.
   

• End of term
  
  a. LEASING: At the end of the lease (typically 2-4 years), you may have a new payment either to finance the purchase of the existing vehicle or to lease another vehicle.
  
  b. BUYING: At the end of the loan term (typically 4-6 years), you have no further loan payments.

Consider all the costs involved in a lease.

At the beginning of the lease, you may have to pay your first monthly payment; a refundable security deposit or your last monthly payment; other fees for licenses, registration, and title; a capitalized cost reduction (like a down payment); an acquisition fee (also called a processing or assignment fee); freight or destination charges; and state or local taxes.

During the lease, you will have to pay your monthly payment; any additional taxes not included in the payment such as sales, use, and personal property taxes; insurance premiums; ongoing maintenance costs; and any fees for late payment. You'll also have to pay for safety and emissions inspections and any traffic tickets. If you end your lease early, you may have to pay substantial early termination charges.

At the end of the lease, if you don't buy the vehicle, you may have to pay a disposition fee and charges for excess miles and excess wear.

Negotiating a lease, this which can be considered:

• The agreed-upon value of the vehicle--a lower value can reduce your monthly payment

• Up-front payments, including the capitalized cost reduction

• The length of the lease

• The monthly lease payment

• Any end-of-lease fees and charges

• The mileage allowed and per-mile charges for excess miles

• The option to purchase either at lease end or earlier

• Whether your lease includes “gap” coverage, which protects you if the vehicle is stolen or totaled in an accident.

• Ask for alternatives to advertised specials and other lease offerings.

• Know your rights and responsibilities

• When you lease a vehicle, you have the right to use it for an agreed-upon number of months and miles turn it in at lease end, pay any end-of-lease fees and charges, and walk away

• Buy the vehicle if you have a purchase option
  take advantage of any warranties, recalls, or other services that apply to the vehicle.

You may be responsible for::

• Excess mileage charges when you return the vehicle. Your lease agreement will tell you how many miles you can drive before you must pay for extra miles and how much the per-mile charge will be.

• Excess wear charges when you return the vehicle. The standards for excess wear, such as for body damage or worn tires, are in your lease agreement.

• Substantial payments if you end the lease early. The earlier you end the lease, the greater these charges are likely to be.
  
   

Additional Car Buying Resources click here