Do your research first!

This is the most important step in your quest to buy a new car. You should dedicate time to doing your research before you step into a single dealership or call a single private seller. Understanding how much you can afford and what sort of vehicle with what options you actually need is the first step of buying a car. Car dealers are in the business of selling you more than you need at more than you can afford. As you are going through this section, feel free to contact me if you have any questions.

Tip #1 - Determine whether you really need a new car

It is important to understand that cars depreciate in value quickly.

Tip #2 - Determine your budget and stick to it

If I were to ask you how much you can spend on a new car, what would you say? If you answer with $X/month, you need to pay close attention in this section. Dealers want you to think in terms of a monthly car payment, but you should be thinking in terms of the out-the-door price (base price + tax + registration + licensing). For example, let's say that you are looking at a car that costs $15,000. Your true out-the-door cost is around $16,500 (varies based on location) and this is the amount that should not surpass your budget.

Your budget should be determined based on the following items:

Since these four items vary from one person to the other, it is hard to provide a formula for calculating your new car budget. Those who think in terms of total cost say that it should not exceed one tenth of your annual income. Others who think in terms of a payment say that it should not exceed 20% of your monthly take home pay minus your recurring expenses. I like to think in terms of out-the-door cost, so I think that your budget should not exceed 15% of your gross annual income and, if you are taking out a car loan, you should have enough savings to be able to put 10% down.

Once you have determined your budget, make sure that you stick to it. You will be tempted to increase your budget along the way...

Tip #3 - Determine your needs

In order to get the best deal on a car, you need to understand what it is that you need. The best way to achieve this step is to sit down with a pen and paper and list the features of your next car in two categories: must have's and nice to have's.

Must have's are the items that a car has to have in order to even be considered for purchase. Here is the list I compiled for must have's when I purchased my car (these are in random order, since they all have to be satisfied):

As you can see, I was very flexible on my car purchase, because I needed a car to get me from A to B safely. Make sure that you cover all of your requirements. This list will ensure that your next purchase will satisfy all of your needs.

Tip #4 - Research many makes and models

Don't seattle on a single model right away. Research many makes and models to make sure you make the best possible decision.

Tip #5 - Pay attention to resale value

Resale value is an important factor of every car purchase.

Tip #6 - How to choose between new and used

How much does the new car smell cost?