Want to Buy a Car? Here’s What You Should Do Now

If you’re tired of taking the bus everywhere you go, or if you’re about to move to an area with little in the way of public transportation, or if you’re simply young and looking for your first vehicle, you’ll need to start thinking about how you’re going to pay for a car.

The sooner you start planning for the purchase, both in terms of vehicle knowledge and in terms of financial planning, the easier your decision will be—and the more satisfied you’ll be with it, long term.

Get Your Documents Together

Let’s start with something easy: getting your documents together. You’ll need to have several personal documents available to finalize the purchase of your vehicle and to finalize your car loan. For example, you’ll typically need to have a driver’s license, some kind of proof of address (if your address isn’t the same as what’s on your license), proof of income, proof of assets and liabilities, and information on your current car and insurance. If you’re getting an auto loan from a third-party provider, you’ll also need to provide the lender with information regarding the sale, including your dealer invoice and basic information on the car.

Improve Your Credit Score

If you’re going to get a loan to purchase the vehicle, you’ll want to boost your credit score. A higher credit score will increase your likelihood of getting a loan, and in some cases, will earn you more favorable terms and conditions—like a lower interest rate.

Unfortunately, credit score improvement is a process that takes time and requires patience. Still, you can get started improving your credit score with a few simple habit changes. For example, you can commit to paying all your bills on time, you can limit your opening of new credit or new accounts, and you can start paying off your debt.

Determine How Much Car You Can Afford

Too many people buy the car they want most, rather than the car that fits within their budget. It’s tempting to choose a vehicle that offers a faster performance, a flashier look, or more personality—but this model may not be good for your long-term financial wellbeing.

Instead, take the time to account for your monthly income and current monthly expenses. What are you currently making and spending? What are you currently spending on a vehicle and/or other modes of transportation? The general advice is to never spend more than 10 percent of your gross monthly income on monthly payments for your vehicle.

Keep in mind this advice is referring to not just the principal and interest payments on your loan, but also costs for insurance, maintenance, repairs, and fuel. For example, if you’re currently making $4,000 per month, you’ll want to keep your car payments (including insurance) below $400 per month. You can use an online car loan calculator to ballpark the value of the vehicle you can ultimately afford.

Save Up a Down Payment

Each month, you’ll be paying interest on the loan you take out, so it’s in your best interest to minimize the principal you have to borrow. You can do this by saving up a bigger down payment. It’s advisable to save at least 20 percent of the total price of the vehicle, but it’s even better if you can save more.

There are a few different strategies you can use to save more money each month toward your down payment. For example, you can cut “extra” unnecessary expenses, like entertainment costs, or pick up an extra stream of income via a side gig or part-time job. In any case, you should be accumulating a few hundred dollars per month at least. In many cases, if it takes a few extra months to save up a bigger down payment, it’s worth waiting to buy your vehicle.

Shop and Negotiate

Once you have a down payment in hand and a credit score that can earn you a better loan, you can start shopping for your ideal vehicle. Start by doing online research for makes and models that can fit within your budget and still provide you with all the specs you need. If you shop used, you’ll be able to save even more money. Then, visit local dealerships and look for good deals online; depending on the circumstances, you may be able to negotiate for an even lower price.

The sooner you start planning for your vehicle purchase, the sooner you’ll be able to start saving money and improving your credit score. Given enough runway, even someone in a bad situation can turn their financial health around in time to purchase a vehicle affordably. Even if you’re in a position to buy a car right now, the extra planning can help you.