Guide to buying your first car

The keys are in your hands and you jingle them in anticipation as you walk towards your new car! Your get goosebumps as you turn the ignition – freedom, here I come!

Nothing beats the thrill of buying or leasing your first car, and this blog post aims to steer you in the right direction when it comes to making this big purchase.

Price: How much can you afford?

The first step to buying a car is knowing your budget so that you only look at cars you can afford. Review your financial situation carefully. Buying a car is not only about the purchase price, you must also consider the costs to run and maintain the car, which include: gas, insurance, maintenance and repairs, and parking. Create a list of these extra expenses with an estimated dollar figure per month, so you’re not surprised by unexpected costs.

When it comes to monthly car payments, what's the most you should spend?

Monthly car payments should be between 10-15% of your take-home pay (after taxes).

Once you have an understanding of what you can afford, you can decide on the best option for you: buying a new or pre-owned car, or even leasing a car.

Since cars depreciate in value as soon as you drive them off the lot, buying in cash (if it’s possible) is typically the best option. If you’re taking out a loan, a down payment is not required but it will lower your monthly payment and you won’t have to borrow as much from the bank. A down payment of at least 20% is recommended.

How do you finance your first car?

If you can’t pay for your new car up front, there are a few options available for loans, including a bank or credit union, the dealership or a third-party lender. Dealerships tend to have better rates, however, it's worth getting pre-approved by other lenders before visiting the dealership, for the sake of comparison. Complete all loan applications within a couple of weeks so that the impact on your credit score is minimal.

Pay close attention to how much your loan will cost in interest. The higher the interest rate, the more you will pay. The shorter the loan, the less interest you will pay. Use manufacturer websites, since they’re very effective at comparing different payment scenarios and financing terms.

Note: Aim for a loan period of 3-5 years only, and be wary of 7-8 year loans. Cars depreciate in value so you don’t want to owe more on your loan than what you can sell it for.

What to consider when choosing your car

A car does more than get you from point A to point B. It should accommodate your lifestyle. Take the time to envision what you need out of your car to find one that best suits your needs.

First, consider how well the models in your price range meet your needs. How many people can it hold? What is the cargo space like? How does it drive?

Below is a list of additional items to research:

• The mileage and fuel economy you can expect from that make/model
• The actual loan cost to own the vehicle, (how much are you paying over the period of your loan, including interest?)
• How long the vehicle is likely to last
• Consumer ratings
• General availability of the vehicle Standard safety features like airbags, antilock brakes, traction control

Second, what kind of car features would you love to have? It might not be within your price-range to purchase a car that accommodates all your needs and wants, so a compromise may be required based on your budget.

Review the list below for some nice to have features and weigh your wants vs. needs:

• GPS and touch screen features
• Sunroof
• Leather and/or heated seats
• Automatic sliding doors
• Heated seats
• Phone charging jacks
• Under-seat built-in storage
• Advanced safety features: back-up camera and lane-departure warning and assist systems

Test-drive and inspections

You've decided on a car, now it's time to take a closer look. Arrange for a test drive with the dealership or private seller. Pay attention to how the car feels on the road and whether it has enough room for your needs. Take the time to test all of the features to make sure they work as expected, for example – does your phone sync properly to car’s sound system?

If purchasing a used vehicle, have it inspected by a trusted mechanic before making the deal. This kind of inspection usually costs somewhere between $100 and $200. You can forgo the inspection if the vehicle is a certified pre-owned vehicle, since it will come with a limited warranty.

Tips for closing the deal with a dealership

When it’s time to negotiate the deal, read your contract carefully.

Before you sign, ensure you understand the terms of any financing and warranty agreements. Ask any questions you have. Remember, this is a big purchase and you want a car that will serve you well for years to come.

Remember to set-up automated billing to ensure you never miss a car payment!

Get the car insurance that’s right for you

In Canada, car insurance is the law. Insurance protects you, your car, your passengers and others on the road. With the right insurance plan, you can drive with greater peace of mind knowing what matters most is protected.

When purchasing your first car, insurance is required before you can get behind the wheel. Insurance costs and coverage vary depending on driver age, driving record, vehicle type, insurance provider and extent of coverage. We know that buying your first car is an exciting milestone. Be sure to speak with a BrokerLink insurance broker to help you find the right coverage for your journey ahead.

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FAQs for Guide to Buying Your First Car

Do I need to consult with a lawyer when buying a used car?

Lawyers are not required when buying a car. However, should something go wrong when purchasing a used car, there are no consumer laws to protect you from a private seller. If this occurs, you may need to go to court or consult a lawyer.

When purchasing a used car, get the following information (either in writing or take photos) from the private seller:

• the car’s accident history
• copies of service records, including maintenance and repairs
• a copy of past emissions tests (if applicable)
• proof that they own the car
• proof that there is no money owed on the car
• proof that there is no lien on the car

What is a good mileage for a used car?

The rule of thumb is that the average car will accumulate about 20,000 km per year. For example, a four-year old car will have about 80,000-90,000 total kms. If it has travelled considerably more, you can negotiate price based on high mileage.

Should I buy or lease a new car?

Leasing a car in Canada is an option for anyone who is thinking about getting a new car. A car lease allows you to drive a brand new vehicle for a fixed period at an agreed monthly rate. There are pros and cons when it comes to buying vs. leasing, which you can read about in our blog: Should I lease or buy my next car? and Car leasing 101.