I recently I got this email from a single mom, 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 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
- Look at the monthly budget of all your expenses and debt payments.
- Get your credit score
- Get a financing quote beforehand
- Choose a shorter loan term and put money down
- Do your car research
- Get car insurance
- Should you trade in your old car?
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.
How do I afford a car?
Whether you need to replace a junker, buy the car of your dreams, or just find a reliable vehicle within your budget, affording a car can be challenging.
The first step is to decide how much car you can afford — not figuring out how to buy the luxury ride of your dreams.
- Monthly payment
- Down payment
- Trade-in value of your current car
- Sales tax
- Interest rate
- Length of payment term
- Vehicle price
A big part of getting the car you want is knowing your budget. Ask yourself, ‘How much car loan can I afford?’ You might also consider buying without financing — a good option for less expensive cars.
Do you have anxiety about negotiating your own deal? Not sure how to buy your first car? I will help you break it down. TrueCar and Kelley Blue Book. These are services that give you in-depth data on pricing and long-term value.
Not sure what car you want? U.S. News & World Report listed the 25 most reliable used cars under $10,000 in May 2019 including everything from subcompact cars to SUVs.
Things you need before you set foot in a car dealership:
1. Do I want a new or used car?
The reasons to buy a new vs. used car are more complicated than many people realize.
On the surface, it may seem like you should buy a new car if you can afford the monthly payments, or buy the used car if you are strapped for cash.
But the equation is far more complicated:
Pros of buying a new car
New cars are often easier to finance — and at a lower rate. Today, with interest rates so low, it may make sense to finance your vehicle — even if you have cash (because you can likely earn more in an interest-bearing account or investment than you will pay in APR on an auto loan).
A new car will last longer, typically, and cost less to maintain — at least in the short-term.
You will have infinitely more options for models, color, upgrades with a new, vs used vehicle.
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.
Cons of buying a new car
New cars always take the new-car penalty, losing 15% or more off their price the moment you drive it off the lot.
An older car requires more time and money to maintain it — which is a huge downside.
A quality used car can be an excellent option — though you will pay a higher interest rate than a new car should you finance it.
2. Should you finance a car purchase — or pay cash?
Deciding whether to pay cash or finance a car? Consider:
- Do you have enough cash? This may seem obvious, but even if the answer is ‘yes’ the question is really: Can you afford to pay cash for a good car? Because even if you buy an $7,000 vehicle with no loan, you may have to invest time and mone in repairs and maintenance of an older car.
- What is the total cost of the car? Again, financing a new car will likely come with a lower APR than a used car. However, calculate the entire cost of the car over the length of the loan to understand your total out-of-pocket expenses. In other words: Just because you can afford the monthly payment does not mean that the purchase is a good value for your budget. In fact, a shorter-term loan like 36 months may come at a lower APR than a 60-month loan, so your total expense for the car, plus financing, will be lower.
How do I finance a car?
Check your credit score. This will determine the size of the car loan, and at which price.
If your score is lower than 700, take steps to improve your credit score. The Credit People is a great, honest resource for credit repair.
How do I negotiate a car price?
It can be intimidating to negotiate the price of the car you have identified. Here are some tips for making sure you get the best price for the car you choose:
- Secure an online lender before sitting at the negotiation table. This gives you a hard budget and interest rate to compare once a car dealer makes an offer.
- Ask about Guaranteed Asset Protection (GAP) insurance when financing a car. Good GAP insurance covers any outstanding costs outside of your auto insurance benefit if the car is totaled.
- Check out CarFax, where you can find used car listings, do a background check on the VIN, and present a 100% haggle-free price.
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 a tool like Tiller's budgeting spreadsheet. 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!
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 Karma >>
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 Karma 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?
- Check your credit score free from Experian, which can also give you an immediate credit score increase up to 13 points! Learn more about Experian Boost here.
- 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.
- Repair your credit. If you have bad credit or a low credit score, you may need to hire a credit repair company like The Credit People 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. 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.
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.
Wealthysinglemommy.com founder Emma Johnson is an award-winning business journalist, activist and author. A former Associated Press reporter and MSN Money columnist, Emma has appeared on CNBC, New York Times, Wall Street Journal, NPR, TIME, The Doctors, MONEY, O, The Oprah Magazine. Winner of Parents magazine’s “Best of the Web” and a New York Observer “Most Eligible New Yorker,” her #1 bestseller, The Kickass Single Mom (Penguin), was a New York Post Must Read. A popular speaker, Emma presented at the United Nations Summit for Gender Equality. Emma's Top Single Mom Resources.