Hot (or Not) Wheels
Planning for your first car.

by Eric Hoffman

TWEENS & TEENS News November 2006

Do you dream about how great life will be when you can drive? Are you counting the months— maybe the years— till you’re old enough to get behind the wheel?

No matter how far away that big day seems, it’s never too early to start planning for receiving your driver’s license— especially if your dream about driving includes driving a car of your own.

You know that buying a car takes money. That’s common knowledge. But have you thought about the cost of keeping a car gassed up? Getting it fixed if it breaks down? What if you and your parents don’t have enough cash when it comes time to buy a car? You may be able to finance your car through a bank, credit union or car dealer, but how much should you expect to pay back?

There will be annual fees to register the car and, in most states, have it inspected. If you live in a city, you may have to pay for parking. And, if your parents don’t plan to put your car on their policy, you’ll need to factor in the cost of insurance.

Are all these costs adding up to a lot of financial anxiety? Rather than give up on your dream, make a budget. Two budgets, actually: one for figuring out how you’re going to save up enough money to buy the car, and one for calculating how much it will cost you in the years and months after you’ve bought it.

First, you need to estimate how much you’ll have to pay for your car. A good way to begin is to decide what kind of vehicle you want. Then check out prices— on the Internet, in the newspaper classifieds and at car dealerships.

Before you think horsepower, satellite radio, mp3 player, moon roof or GPS, start with the basics. You’ll need a safe, reliable car that is economical to operate, repair and insure. Consumer publications, which review cars based on these factors, are good sources of information.

As you’ll probably want to give rides to your friends— and, yes, the occasional family member, factor in what size car seems the best fit. Think too about how much cargo space you’ll need, for skis or other sports gear, for example, or to transport all of your stuff to and from college. Build your budget around these basics. If you end up with money to spare, then you can think about options to splurge on.

Most young people pay cash for their first car or get a loan from a family member. Some, however, decide to finance the cost of the car through a bank, credit union or car dealer. In any case, you need to start saving now. Let’s say your goal is to save $5,200 over the next two years, either for the cost of the vehicle or for the cash down payment that you’ll probably need for financing the car. You’ll need to save about $215 a month, or exactly $50 a week.

Once you’ve figured out how you’re going to pay for the car, the next step is to make sure you can afford to keep it. Make a list of all the expenses you’ll be responsible for, such as gas and insurance, and estimate how much each expense will cost. Next make sure your budget covers them all!

If you decide that financing through a bank, credit union or car dealership is the best choice for you, here are some things you should know:
1. You’ll need to factor the monthly payment into your ongoing budget. If you pay late, or if you skip a payment completely, you could literally lose possession of your car— and wreck your credit record for years to come. To avoid these consequences, it’s best to pay on time.
2. Speaking of your credit record, it’s smart to know what it is before you ever talk to a lender. If you’ve never borrowed money from anyone other than friends or family before— and most young drivers haven’t— you probably don’t even a credit record. If you have one, it’s based on your employment history and how you have repaid credit in the past. A good credit record can help you get financing with favorable terms. A bad record gets you less favorable terms. If it’s horrible, you might not be able to finance your car.
3. It also helps to know that vehicle financing is a very competitive business. Find out what finance rate and other terms your bank or credit union offers. If you’re considering buying from a car dealer, ask about dealer financing terms. Then choose the best financing you can find.
4. Remember that you can negotiate. Consumers have the ultimate power in any negotiation because the auto financing industry is competitive and multiple creditors want your business.
5. Last but not least, while you have to be 18 to sign a contract on your own, be sure you completely understand all the terms of the contract before you, or your parents, sign it. This advice will stand you in good stead throughout your life, whether you’re buying your first car or your eventual ultimate dream machine.

While the Internet offers tons of sites for researching about financing, www.autofinancing101.org is a good place to start. And if all this information seems overwhelming, remember one simple thing: The most important thing about buying your first car is planning, budgeting and saving for it. Developing good financial habits will help make your dream car a reality.

Eric Hoffman serves as the director of AWARE (Americans Well-informed on Automobile Retailing Economics), a campaign to educate consumers about the vehicle financing process.