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The Definitive First-Time Car Buyer’s Guide

By Nicole Bustamante

Getting your driver’s license is a big milestone, and sometimes it even comes with a hand-me-down or shared family wheels to clock your first miles. If you were lucky enough to have easy access to a car as a new driver, you likely didn’t have to consider all the “grown-up” factors that go into owning a vehicle. 


While you may no longer be new to the road, getting a car as an adult is a completely new experience with a lot of gray areas and questions. But you don’t have to ride it out alone: we’re here to guide you through this journey by answering some of the burning questions that are likely on your mind.


What expenses are related to owning or leasing a car?


There are many expenses that you’ll have to keep in mind when purchasing your first car. The six major costs of owning a car, according to Money Under 30, include maintenance and tires, fuel, finance charges, depreciation, insurance, and licensing, registration, and taxes. 


Tallying those six categories together for a new car brings the cost of ownership in the first year to around $11,756. Depending on where you live, you’ll also want to factor in the cost of a street parking permit or garage fee. If you live in a city, this can account for a significant portion of your month-to-month costs as a car owner.


To avoid running yourself into debt, keep these numbers in mind when determining how much car you can afford. How do you do this, you ask? Well first, you’ll want to create a general budget for your monthly expenses, if you don’t have one already. 


Then we can look at creating a budget specifically to purchase or lease a car. These five tips from Warren Clarke from CARFAX provide a good starting point. 


  1. Set a purchase price for your car. In other words, decide how much you’re able and willing to shell out for your new (or used) wheels. Solidifying this number will also help you when it comes to financing your car. According to Clarke, a good general rule to follow with financing is to “set a loan payment that is no more than 20 percent of your monthly income.”


  1. Factor in additional fees like registration and title costs. These amounts can vary depending on where you live, so check with your local DMV to learn more. 


  1. Don’t forget about sales tax. The price on the sticker is never what it seems. The sales tax that you pay on your car depends on what state you live in, but can be up to 7.5%. 


  1. Consider insurance costs. You are legally required to have car insurance, but what kind of insurance plan you take out will depend on where you live. Keep in mind that the legal requirement may not cover all your bases, so explore the options to make sure that you are protected while keeping your budget in check.


  • Set aside money for your car upkeep. Sadly, your car is not going to stay forever young. Over the years, your best automobile buddy will require maintenance and repairs. Whether it’s for regular oil changes or cosmetic updates, you’ll need to budget for these guaranteed expenses before they come down the pipeline. 


You can keep your budget in good shape by using buy now, pay later services like Zip. Splitting your payments, bills, and expenses into four is one of the best ways to stay financially healthy when owning a car. You can pay for gas, maintenance updates, and more with Zip at checkout, then split the payment by paying the remaining installments over six weeks.


Now that you’re fully aware of the expenses at hand and have a budgeting plan laid out, let’s take a look at the details of what, when, and how.


Gas or electric?


This question is more complicated than meets the eye. Owning an electric car is synonymous with being environmentally friendly, but it’s not necessarily cheap. 


Car and Driver broke down all the details in comparing two car models available in both electric and gas (Hyundai and Mini Cooper) to determine which is cheaper to own. Through many variables like miles driven, maintenance costs, gas, and charging costs, they discovered that the gas Mini was cheaper to own in the first three years and the Hyundai electric was more costly. 


However, this analysis didn’t take into account the state and local incentives that can amount to $7,500 in tax credit, or the lower costs of fuel and maintenance for an electric vehicle over the years. Ultimately, there is no clear answer here, but it appears that in addition to the environmental benefits, the higher upfront cost of an electric vehicle may be offset by the lower ongoing cost of ownership.


Is it better to lease or buy a car?


Excellent question! Leasing a car means that you are essentially renting it for a designated period of time, with the option to purchase it at the end of your lease or trade it in for a new car. Buying a car means, well, that it’s yours (once all loans are paid off). 


These two options both have pros and cons. When leasing a car, the monthly payments are lower than loan payments, you have a warranty for repairs, and you can get a new car every few years or so. But leasing a car comes with fees that can make it an expensive prospect—and you don’t have any equity in the vehicle to re-sell it and potentially make some of that money back. Deciding to lease or purchase can depend on how long you are planning to stick with your trusty carriage, but typically purchasing and keeping a car long term is the most cost-effective option available. 


When is the best time to buy a car?


There is a time and a place for everything, including buying a car. Carfax recommends these five ideal purchase times to get the most bang for your buck:


  • On a weekday. Slow Mondays mean that you can get more quality one-on-one time with the dealer.

  • At the end of the month or quarter. Everyone has sales goals they want to hit. Timing your purchase to that deadline is the best way to gain some leverage for the negotiation process.

  • On a holiday weekend. Take advantage of those “once-a-year, unbeatable” deals.

  • At the end of the year. A two-in-one! Yearly sales goals are coming to a close, and New Years’ deals are freshly on the table at this time.

  • When a new model is released. Dealers are likely in the mood to move some inventory, and there’s nothing like a shiny new option to help bring down the cost of an equally amazing car with an older model number.


Can you buy a car with a credit card?


Short answer: yes, it’s possible as long as your credit limit permits and your dealer allows it. But would we recommend this? No. 


Not only is it uncommon for a dealer to offer this option because of transaction fees, you would also be charged a convenience fee and have to pay off the balance (with interest) over an extended period. Generally, you’ll find that the interest rates on auto loans are much lower than on credit cards.


What credit score is needed to buy a car and can you buy one with bad credit?


When it comes to buying a car and getting an auto loan, you’ll need to be prepared for the lender to review your income and credit score. Based on data from Experian, Investopedia breaks down the score categories that lenders use below and shares that prime and super-prime are the ideal ranges to fall under. 


  • Super prime: 781 to 850
  • Prime: 661 to 780
  • Nonprime: 601 to 660
  • Subprime: 501 to 600
  • Deep subprime: 300 to 500


If you’re not within the prime or super prime range, you can still be approved for a car loan—but the terms are not likely to lean in your favor. If you’re in this position, there are a few things you can do to best set yourself up for success. 


First, take a look at your credit scoreand try to improve it by paying your bills on time and reducing your debt. Then focus on securing your down payment. The more you can pay off immediately, the less your loan and monthly payments will be. 


Next, seek preapproval for a loan to understand what is really in your price range. You can even potentially use the preapproval as negotiation leverage! Finally, you can start shopping around for the best loan for your financial situation. There are several lenders that work with people who have low credit scores, such as Carvana and New Roads. 


What do I need to ask when buying a used car?


Asking the right questions is key to feeling comfortable when buying a used car. Here are some of the most important questions to ask if you’re not sure where to start. 


  • How was the car maintained? 
  • Are service records available?
  • Has it been in any accidents?
  • What features don’t work the way they’re supposed to?
  • What is the ownership history?
  • Why are you selling the car?
  • How did you arrive at this price?
  • Can I take the car to a mechanic for an inspection?
  • Do you have the title in hand?
  • How old is the car?
  • What’s the car’s mileage?
  • Are you selling the car as is, or is it under warranty?
  • Is there any damage to the exterior of the car?
  • Are there any mechanical problems?
  • How would this car impact my car insurance premiums?


Searching for a new car can initially feel like you’re taking the highway to hell, but we’re happy to inform you that you’ve already taken one of the hardest steps by reading this guide. With this knowledge in your back pocket, you’re officially one step closer to signing on the dotted line and having a new pair of keys in your hands. 


And don’t forget: whether you’re filling up your tank or getting a part replaced, the Zip app can help you manage all the day-to-day expenses that come with car ownership.

Get started with Zip today

Zip’s editorial content is not written by a financial advisor. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

About the author
Nicole Bustamante

Nicole Bustamante is a writer and journalist passionate about storytelling and the art of fashion. She has written for The Zoe Report, Angeleno Magazine, Modern Luxury Interiors California, and more in addition to writing for her personal blog.