Millennial Money: Don’t let your first car be a $30K mistake

May 30, 2022, 4:00 PM | Updated: May 31, 2022, 4:06 am

Buying your first car is already an intimidating experience; in the midst of historic supply shortages, it’s easy to feel overwhelmed.

In March of this year, the average price of a used car was $27,246, according to Cox Automotive — an automotive marketplace and data company — or 28% higher than it was a year ago. With those price increases, monthly payments have also swelled. Average payments for used cars reached $488 in the last quarter of 2021, according to Experian. On top of that, the average loan term for used vehicles was just over 67 months, or more than five years.

For many, cars are a necessity. If you have little or no credit, no co-signer or just a limited budget, it can be easy to accept a loan that pushes your budget or binds you to a car for six, even seven years.

Not being ready before stepping onto a car lot can open the door to making a purchase you’ll later regret. Set your limits before you ever stop at a dealership; with the right preparation, you can keep your purchase from becoming a burden.

SECURE A LOAN

Your first step is calculating what loan payments you can afford and the total loan amount that’s within your budget.

Aim to keep your monthly loan payment below 10% of your take-home pay, and if you’re buying a used car, keep your loan term under 36 months. If you’re looking for a new vehicle, keep the term under 60 months. Limiting your loan term will save you money on interest and will lower the risk of your loan becoming upside-down — owing more than the car is worth.

Numbers in hand, start looking for a lender that will give you a loan. Getting preapproved for a loan before visiting dealer lots can give you a better negotiating position, keep you from going over budget and reduce what you pay in interest.

With little or no credit history — especially since you have not had a car loan before — your best shot at being approved for a loan at the lowest interest rate possible is to apply with a co-signer. But if that’s not a possibility for you, there are still financing alternatives available:

— One of the first places to look are banks and credit unions, particularly institutions that you have an established relationship with.

— Search your area for lenders with first-time buyer programs, which put conditions on the amount you can borrow and the vehicles you can buy but dispense with some of the credit requirements.

— You can also look for loans from online lenders that offer bad-credit auto loans, since they will often have low or no minimum credit scores. These loans can carry interest rates of over 25%, so a year after taking one on, you can try to refinance for lower rates.

PICK THE RIGHT CAR

Finding a cheap car used to be easy — or at least easier than it is now. If you have a $10,000 budget, your options are limited, but that doesn’t mean there aren’t options.

With a limited budget, most choices will be older, used cars, and that increases the annual cost to maintain your car. A 2021 Consumer Reports study found that 2016 model year vehicles cost $205 to maintain over the previous 12 months, while 2011 model year vehicles cost $430.

In addition to maintenance costs, there’s also fuel, insurance, registration and taxes that all add to the cost of owning a vehicle. As you search for a car, look into the cost of ownership, since it will differ from car to car.

The total cost of owning your vehicle, including your loan payment, shouldn’t exceed 20% of your take-home pay. Although some costs can’t be significantly reduced, you can minimize others — such as future maintenance, repairs and fuel — with the right car.

“The most important thing to look for is a car with good maintenance history,” Joey Capparella, a senior editor at Car and Driver, said in an email. “If the previous owner has taken good care of the car and can provide service receipts, that trumps other attributes such as the number of miles or the brand. One-owner cars are desirable for this same reason.”

Service and ownership history can sometimes be found through a service such as Carfax. Use this information, along with total mileage and the car’s age, to narrow down your search. When looking at vehicles for less than $10,000, the car with fewer miles will often be the better choice, if all else is equal.

Once you’ve settled on a car, take it for an extensive test drive, Capparella added, and pay attention to “the seating position, the visibility out of the windows, and the sound of the engine.”

If something about the car isn’t right for you, a different vehicle is likely a better choice, and don’t be afraid to be picky. You may not be buying the car of your dreams, but you could be living with your choice — and making payments on it — for years to come.

_______________________________

This column was provided to The Associated Press by the personal finance website NerdWallet. Colin Beresford is a writer at NerdWallet. Email: [email protected] Twitter: @Colin_beresford.

RELATED LINK:

How to Get a Car Loan With Bad Credit https://bit.ly/nerdwallet-how-to-get-a-car-loan-with-bad-credit

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

FILE - Elon Musk speaks at the SATELLITE Conference and Exhibition March 9, 2020, in Washington. Tr...
Associated Press

To buy Twitter, Musk has to keep banks, investors on board

If the squabbling ever stops over Elon Musk’s renewed bid to buy Twitter, experts say he still faces a huge obstacle to closing the $44 billion deal: Keeping his financing in place. Earlier this week, Musk reversed course and said he’d go through with acquiring the social media company under the same terms he agreed […]
1 day ago
FILE - In this file photo released by the U.S. Navy, a Saildrone Explorer unmanned sea drone sails ...
Associated Press

US, UK hold drone drill in Persian Gulf after Iran seizures

DUBAI, United Arab Emirates (AP) — The U.S. Navy held a joint drone drill with the United Kingdom on Friday in the Persian Gulf, testing the same unmanned surveillance ships that Iran twice has seized in recent months in the Middle East. The exercise comes as the U.S. Navy separately told commercial shippers in the […]
1 day ago
A man wearing a blanket cast his vote at a poling station in Maseru, South Africa, Friday, Oct. 7, ...
Associated Press

Thousands vote in southern Africa’s small kingdom Lesotho

MASERU, Lesotho (AP) — Thousands of voters in Lesotho are casting their ballots in the country’s general elections. The elections are a tight race between the top three parties out of a field of more than 60 registered political parties. Outgoing Deputy Prime Minister Mathibeli Mokhothu of the Democratic Congress party is running against his […]
1 day ago
A Russian rocket sticks out of the ground in a forest near Oleksandrivka village, Ukraine, Thursday...
Associated Press

Missiles, drones hit Zaporizhzhia again as death toll rises

KYIV, Ukraine (AP) — The death toll from a Russian missile attack on apartment blocks in the southern Ukrainian city of Zaporizhzhia rose to 11 on Friday as the city was hit again by missiles and — for the first time — by explosive packed drones. With its army suffering a series of stinging battlefield […]
1 day ago
Associated Press

Japan regulator orders brokerage to halt block trading

TOKYO (AP) — Japan’s Financial Services Agency ordered brokerage SMBC Nikko Securities to suspend its block trading operations for three months from Friday as part of penalties in a market manipulation case. That follows the arrest of its vice president, Toshihiro Sato, and several other employees on suspicion they put in massive buy orders to […]
1 day ago
Associated Press

Danes puzzled by minor tremors in international waters

COPENHAGEN, Denmark (AP) — Officials in Denmark are puzzled by four small tremors that were recorded this week off a northeastern Danish island in the Kattegat sea. The Geological Survey of Denmark and Greenland (GEUS) said it had detected the tremors on Tuesday and Wednesday, adding that each time there were two tremors approximately 30 […]
1 day ago

Sponsored Articles

Anacortes Christmas Tree...

Come one, come all! Food, Drink, and Coastal Christmas – Anacortes has it all!

Come celebrate Anacortes’ 11th annual Bier on the Pier! Bier on the Pier takes place on October 7th and 8th and features local ciders, food trucks and live music - not to mention the beautiful views of the Guemes Channel and backdrop of downtown Anacortes.
Swedish Cyberknife Treatment...

The revolutionary treatment of Swedish CyberKnife provides better quality of life for majority of patients

There are a wide variety of treatments options available for men with prostate cancer. One of the most technologically advanced treatment options in the Pacific Northwest is Stereotactic Body Radiation Therapy using the CyberKnife platform at Swedish Medical Center.
Work at Zum Services...

Seattle Public Schools announces three-year contract with Zum

Seattle Public Schools just announced a three-year contract with a brand-new company to the Pacific Northwest to assist with their student transportation: Zum.
Swedish Cyberknife 900x506...

June is Men’s Health Month: Here’s Why It’s Important To Speak About Your Health

According to the Centers for Disease Control and Prevention, men in the United States, on average, die five years earlier than women.
...

Anacortes – A Must Visit Summertime Destination

While Anacortes is certainly on the way to the San Juan Islands (SJI), it is not just a destination to get to the ferry… Anacortes is a destination in and of itself!
...

Ready for your 2022 Alaskan Adventure with Celebrity Cruises?

Celebrity Cruises SPONSORED — A round-trip Alaska cruise from Seattle is an amazing treat for you and a loved one. Not only are you able to see and explore some of the most incredible and visually appealing natural sights on the planet, but you’re also able to relax and re-energize while aboard a luxury cruise […]
Millennial Money: Don’t let your first car be a $30K mistake