I recently read this post in my Facebook group, Millionaire Single Moms, and it made me feel all the good feels:
At 40 years of age this happened today: I purchased my first car on my own — no male input, no ex-husband choosing which car, no parents weighing in on my choice… this beautiful baby is a result of all my hard work and research. I am proud of myself today – selling the ex’s car I got in the divorce and starting fresh with my own selection: a Lincoln Hybrid MKZ. Excited to pick up my daughter from school today in this new purchase mommy did all on her own. – Jennifer
I hear from women all the time about the incredible feeling that comes with buying a car on their own.
Not only do they get the car they want (and not the car a parent or man thinks they should have —or are willing to pay for) but having the financial power to make a major purchase, as well as select a giant, technical machine (which society tells us is men's territory) is incredibly empowering.
But it also made me think. How many single moms have never actually purchased their own car? When I looked deeper into my Facebook group, polled my Instagram followers (I’m @wealthysinglemommy by the way) and brought it up in casual conversation all week, I quickly found the answer: A LOT.
Most women I talked to had similar reasons why they’d never bought a car.
The story usually goes something like this: “My first car was a graduation gift from my parents, then I got married and my ex-husband and I financed one together.” “My ex-husband helped me buy my car.” “I paid for my own car in my name, but my husband is the one who negotiated with the car dealer.” “I just have no idea where to start in the car-buying process.” So, mamas, I’m throwing down the gauntlet – do you want to buy a new car?
Do you NEED to buy a new car? (“New,” by the way, can be NEW TO YOU!) Then let’s make it happen!
And to help you get started in the right direction, I’m writing this guide to buying a car, just for you.
What to do before buying a car
Navigating the car-buying experience isn’t as easy as waltzing into a dealership and picking one out, snagging the keys and. Especially for first-time car buyers.
Things you need before you set foot in a car dealership:
1. Should you buy a new or used car?
Knowing you want a car is not the same as knowing whether to buy a new or used car. Before you decide, it's a good idea to ask yourself a few questions:
Is it important to you to be the first person to own the car?
There's a big misconception that a brand new car (or any car, for that matter) is an “investment.” WRONG.
The average new car loses between 20% and 30% its value the moment you drive it off the dealer's lot.
Some cars can even depreciate up to 50% in the first three years! That's nuts.
So, for those who value owning a very new car, as well as being the very first person to get a coffee stain on the seat or put a scratch in the door with a shopping cart, or have the prestige of owning a brand-new ride — ask yourself: Is it really worth it just to experience those firsts?
Are you prepared for the potential time and cost of used car repairs?
Many dealerships offer new-car incentives like low financing and attractive warranties that may or may not be a great deal.
The key is to do the math, take emotion out of the equation, and understand the real cost of car ownership.
Pros of buying a new car:
Often come with lower interest rates on financing, extended warranties, and less risk of repairs.
Cost of repair can be lower than that for a similar, older vehicle.
More selection when shopping — you can get what you want in terms of color, upgrades and style (as long as you can afford it, of course!).
Pros of buying a used car:
Less expensive, and you don't take that new-car depreciation hit.
Less to lose if something goes wrong, or you get a dent in the bumper, or an accident. Less expensive to insure.
Keep in mind: expensive upkeep for a pre-owned car can sometimes result in lower out-of-pocket expenses over the long-term when compared with a new car.
Contrary to popular belief, many used car parts and maintenance often cost more than those for a new car.
Things rust and wear, parts become outdated, and sometimes an older car will require a level of skill or experience to fix when compared to its new car counterpart.
Repairs and maintenance are up-front costs that have to be handled as they arise, unlike depreciation, which requires no actual action.
Compare this difference to getting sick (repairs) and aging (depreciation).
They're both going to happen, but one is a much more pressing and costly matter than the other.
If you do go with a car that's been pre-loved, double check whether you may inherit some portion of the warranty.
Many manufacturers and dealers offer powertrain warranties that can last up 10 years, so it's worth asking.
And confirm the manufacturer allows the warranty to be transferred to a new owner, and whether there is a fee involved.
2. Look at the monthly budget of all your expenses and debt payments.
First things first: do your homework. Track your spending to create a monthly budget for your money (or evaluate your existing budget). What kind of down payment are you able to put down? To calculate your monthly budget, use an app like Tiller's budgeting spreadsheet or Personal Capital. These apps will pull in all your income and expenses, and make it very easy to see how much you earn, and how much you spend. Also note how much debt you have — including student loans, mortgage, personal loans, medical debt, credit card and other debt.
What range should your monthly car payment fall in to keep you on track?
A general rule of thumb for car payments is the 20% rule: Your total car expenses should not exceed 20% of your monthly take-home income. So, if your monthly paycheck is $3,000, the total of all your auto expenses should be no more than $600. In addition to your car payment, you also need money for gas, insurance, registration fees, maintenance and repairs. Then there are the one-time new-car fees:
- Vehicle registration fee: Each state issues this fee, which covers the actual registration, the title (document proving ownership), and the license plates. This fee increases the heavier and more expensive your vehicle is.
- Documentation fee: This is the fee a dealership charges to cover costs of preparing and filing documents. Be wary of this cost! Many states don’t regulate the fee, and it can be a doozy. Depending on your state, the median costs can range widely from $75 to $600. Find this out as early in the buying process as you can. If a dealership’s document fee is substantially higher than your state’s median, you can – and should! – negotiate more to offset the cost.
- Sales tax: State sales tax for new cars tends to vary from the regular sales tax rate, which catches some buyers off guard. A sales tax of, say, 6% on a $25,000 car is an extra $1,500 tacked on to the sticker price. Google this information and be prepared to discuss it in your price negotiations!
3. Get your credit score
Arguably the most daunting part for many people is figuring out how to get a loan for a new car. And there’s no denying it: financing a new car is an art as well as a science.
Get your free credit score from Credit Sesame >>
Know your credit score
It’s always a good idea to regularly check your credit score, but it’s even more important to know it before you head into the car-buying process. If you have a low credit score, you may not qualify. Important to know. Experian or Credit Sesame will give you your credit score in a couple minutes.
Keep in mind that dealers will often advertise a super low-interest rate on new cars.
Be aware, though, that the 2.9%, 1.9%, or even 0% interest rates you see apply to buyers with stellar credit — along the lines of 750 or higher FICO scores.
Unlike mortgages or credit cards, even those with poor credit can (usually) get a car loan.
The downside is you’ll end up paying a whole lot more in high-interest rates when your credit score is low. (Read: How to repair your credit)
Keep this in mind, and consider working on repairing your credit (and possibly an old car!) while you work on increasing your credit score, which can save you thousands of dollars in payments, and help you afford a better car.
But don’t let the fact that you’ve managed to get approved for a loan stop you from pushing the negotiations towards a lower interest rate.
Dealers know that buyers with shaky credit can be timid about their creditworthiness, and they make a lot of money on that fact!
Raise your credit score
If you have a low credit score, you need to raise your credit score fast to get a car loan. How?
- Correct errors on your credit report to increase your credit score, which you can DIY or get help from The Credit People.
- Ask your credit card company to raise your limit. As long as you don't also increase your balance, this can quickly improve your credit score since you now have a better credit limit:usage ratio.
- Lend money to yourself to raise your credit score. There are a handful of services that let you essentially lend money to yourself, then repay yourself, which not only improves your credit score, but also helps you save up a cash down-payment for your car. SelfLender is a great, lost-cost, credit builder loan service. You can read the details in my SelfLender review.
- Repair your credit. If you have bad credit or a low credit score, you may need to hire a credit repair company to increase your score. This can quickly improve your chances of auto financing, and help you qualify for competitive car loan rates. (Read: 3 tips to get approved for a loan)
A reputable credit repair company will pull all your credit history, make sure there are no duplicate entries, items that should have aged off the report are in fact off, and contact each of the reporting bureaus on your behalf to make sure that all errors are removed.
The Credit People has one of the best reputations as a legit credit repair company. You can read my review here. Sign-up fees start at $19, and costs $79 per month after. Expect to see results in about six months.
While this may seem like a lot, consider the cost of not repairing your credit score.
Take for example a $25,000 car, and your credit is below 620. In this case, you will pay close to 18% interest, or $13,000 in interest over a 5-year auto loan.
If you raise your score to 720, you would qualify for 6.5% interest, and only pay $4,350 — a $8,650 difference. In other words, a $400 investment in credit repair could save you $8,650 with just the purchase of a car. That could be many times higher if you were refinancing loans, or buying a home.
Get a financing quote beforehand
If your credit isn’t great, try an online lender for your auto loan.
With an online lender, you fill out a credit application online and they tell you your interest rate and maximum budget.
And if the dealer offers you a lower interest rate on the spot, you aren’t obligated to stick to the online lender.
It’s a great way to know that you’ve done your financing research and have a frame of reference for your personal best interest rate.
Get a pre-qualifying car financing quote from LendingTree now. Check LendingTree auto loan financing rates >>
Choose a shorter loan term and put money down
When shopping for a car loan, it can be very, very tempting to look at the lowest monthly payment, and sign for a very sweet ride.
However, lower payments often mean longer payment schedules and higher rates — which mean higher expenses over the terms of the loan.
A shorter loan term means your monthly payments will be higher, but you won’t spend as much in interest over time.
In addition to paying more interest the longer you take to pay off your car, lenders will often charge higher interest rates based on the length of your loan terms. When possible, keep the term short — about three years is usually a happy medium.
Also, aim to put 20% down. While this seems obvious, many dealerships won’t require buyers with satisfactory credit to pay a down payment at all.
This is tempting, but risky. If you decide to sell the car, it’s possible that you’d be stuck if you owe more on the car than it’s worth.
A larger down payment helps make sure that won’t happen.
Do your car research
Before you step foot in a dealership, or answer any online ads for cars for sale, research the invoice price of the car(s) you’re interested in. The invoice price is the amount the dealer pays a manufacturer for the car. Dealerships often add thousands of dollars to this price to turn a profit, but unless you’re looking for an all-new, or very popular model, you should be able to negotiate a price closer to invoice.
Walking into the dealership armed with the amount the car costs at invoice shows them you’ve done your research, and that you mean business.
Research the dealerships you plan to visit. Make special note of car prices displayed online to compare to the car prices displayed on the lot.
Showing a sales person the discrepancy in price listed is a great negotiating tool.
Ask friends and family who have enjoyed their own car-buying experiences with certain dealers, and drop those happy customers' names when you visit the dealership.
Thankfully, there are fantastic online tools that can help you research car prices, and give you ammunition with which you can negotiate the best price.
Knowing what to expect to pay for a new car is also a huge advantage and a great way to avoid sticker shock. Rather than just Googling “how much does a Honda Civic cost?” use a service like TrueCar to see real dealership rates. The service is known for saving buyers a ton of money with their TrueCar Price Reports, which show what other people in your area have paid for the exact car you’ve got your eye on, and gives you a certified report displaying the fair price you should expect to pay, which you can print out and put right up in the face of the car salesperson. BAM. TrueCar is totally FREE. At any given time, there are over a million new and used car listings on the site. Further, TrueCar gives the car buyer (you) a huge advantage over the car dealer.
Unlike a dealership, where the dealer holds their cards close to their chest and doesn't disclose their lowest acceptable bid, TrueCar users actually know the best price right up front. It's this transparency that puts you, the buyer, in control, and has dealers vying for your attention with their very best offers. You can't beat that!
Kelley Blue Book
Another helpful tool for finding out a car’s value is Kelley Blue Book. This goldmine of vehicle resources helps you research and price the value of the car you want, whether it’s a new car or a used car.
Use KBB.com to find out what you can expect to pay based on what others have paid – the Kelley Blue Book Fair Purchase Price is a very well-known and well-respected quote based on what others have paid. It’s a great tool to know how to price your current vehicle or, say, how much to accept as a trade-in offer.
Kelley Blue Book crunches comprehensive car prices on a day-to-day basis through a special algorithm that gathers data from wholesale auctions, independent and large-scale dealers, rental fleets, manufacturers, and even private party transactions, and combines it with historical trends, economic indicators, location, season, and several other factors.
From there, they calculate a price that's widely regarded as an unbiased, sturdy quote. Sellers and buyers alike take advantage of this pricing structure to ensure that things like consumer bias (thinking your for-sale car is the shit when it's actually not that valuable to anyone else) and arbitrary pricing don't interfere in the transaction.
Plus, it's FREE for users researching car prices. Win-win!
Once you have your sights set on a car, it’s time to do some real digging. Dealers and private owners have a tendency to fudge a little when it comes to disclosing the car’s entire history.
Combine that with human error and forgetfulness, and you could have a real issue on your hands. Search on CarFax for a detailed history of any given vehicle.
Simply enter the car’s VIN number or license plate info and you’ll have access to its accident history, services and repairs, recall info, lemon history, and way more, so you can make an informed decision.
CarFax has an A+ Better Business Bureau rating, so you know they're the real deal. Whereas dealerships and wholesale showrooms have a built-in layer of credibility since they're brick-and-mortar, licensed businesses, the same can't be said for individuals selling a car on Craigslist.
That's where CarFax comes in clutch. No more relying on someone's word that the car has never been in a fender bender, has never had a lien on it, or has never been reported stolen — CarFax's trustworthy reports tell the whole story, leaving nothing to chance.
If something is amiss in the CarFax vehicle history report, don't be shy to point it out. If it's not a total dealbreaker for you, you can use this info to negotiate a better deal.
But what about repairs and maintenance performed at home or in a shop that doesn't report their repair histories? Here's a tip: before you disclose any info you've received in the CarFax report, first ask the seller to provide you a written statement detailing the vehicle's condition at time of sale. Certain states – North Carolina, for instance – require by law that anyone selling a car must fully disclose the history of their vehicle, including damage.
If the seller refuses or is hesitant, you're probably better off passing up that sale.
Get car insurance
A lot of states won’t let you drive off the lot without showing proof of auto insurance for your new car.
But before sitting down with the insurance rep at the dealership, first check with your current auto insurance company.
Many will offer temporary coverage for your new car to cover you for anywhere from seven to 30 days while you arrange coverage for the new vehicle.
Keep in mind that if your insurance company coverage on your current vehicle is only liability, the same coverage will apply to the new vehicle for this time period.
If this is the case, add the new vehicle to the policy while you’re at the dealership so that you’re completely covered when you drive off the lot.
Be sure to shop around and get the best car insurance quotes.
Sites like Progressive, GEICO, and Esurance have especially handy quote calculators and can offer major discounts for things like paperless billing, good student discounts, good driver discounts, and many more.
Should you trade in your old car?
A common practice when buying a new car is to simultaneously trade in your current vehicle at the dealership.
Dealers offer trade-in programs for several reasons: they plan to recondition the trade-in and sell it on their used car lot at a profit, or they plan to incentivize the customer to purchase a new car from their showroom or lot.
Pros of trading in your car:
Some buyers see trading in their old vehicle at the same time they buy a new car as a convenience. Think about it: you get the keys to your new car and you're all set to drive it off the lot and into the sunset… but wait! You still have your old car.
Now you have to arrange for someone to drive it to your house, you'll have to get it inspected and cleaned, advertise it somewhere, take time out of your busy day to schedule appointments for total strangers to test drive it, arrange the paperwork and funds transfers, and on and on… OR you could sign on the dotted line, leave the keys to that old clunker with the dealership, and cruise off into a carefree existence. See my point? If you own your old car outright, the dealer will often apply the price of your trade-in to the cost of the new car you're planning to buy. So, for instance, if you're buying a car for $30,000 and the dealer offers to pay you $7,000 for your old car, you now only need to borrow $23,000 from the bank.
Cons of trading in your car:
The trade-in value is almost always less than its market value. The dealer doesn't want to pay top dollar for your old car.
They want to turn around and flip it for a profit.
A private party will typically pay more for a car than a dealer will, but you have to decide for yourself whether the money or the convenience matter more to you. If you trade in your car at a dealership, you have to buy your car there too. There are almost no circumstances where you'd be permitted to sell your car to Dealer A, then turn around and buy a car to Dealer B. It's just not how it works.
Whether you're buying a new car or a used car, choosing to trade in or sell, and choosing to deal with a dealership or a private party, keep in mind that you should always feel in control of your buying and negotiating experience, and that it's never too late to walk away from a bad deal. You got this, mama.
Emma Johnson is a veteran money journalist, noted blogger, bestselling author and an host of the award-winning podcast, Like a Mother with Emma Johnson. A former Associated Press Financial Wire reporter and MSN Money columnist, Emma has written for the New York Times, Wall Street Journal, Forbes, Glamour, Oprah.com, U.S. News, Parenting, USA Today and others. Her #1 bestseller, The Kickass Single Mom (Penguin), was named to the New York Post's ‘Must Read” list.
Emma regularly comments on issues of modern families, gender equality, divorce, sex and motherhood for outlets like CNN, Headline News, New York Times, Wall Street Journal, Fox & Friends, CNBC, NPR, TIME, MONEY, O, The Oprah Magazine and The Doctors. She was named Parents magazine’s “Best of the Web,” “Top 15 Personal Finance Podcasts” by U.S. News, and a “Most Eligible New Yorker” by New York Observer.