For many of us, buying or leasing your first new vehicle is both exhilarating and intimidating. We all remember the first car that we drove – and perhaps bumped a few curbs much to our parents’ chagrin – but the first time you are handed the keys to a “new” vehicle that you have obtained on your own is a significant milestone, and one to be celebrated. Before you do, though, it’s important to do your research and consider the financial impact of this large investment.
This past year, I had a goal of buying my first car, and like most of my endeavors, I voraciously dug into research. Here are some findings from my personal experience that I hope you find helpful.
Choosing the Car
For a bit of background, I was most interested in a compact (or “crossover”) SUV which is great for zipping around the city during the week, while still having 4WD for weekend adventures and plenty of room for passengers and cargo. I have always had an affinity for Subaru’s as they are highly rated for safety, durability, and holding their value over time. I was most interested in the Subaru Crosstrek (smaller body size than the ever-popular Foresters and Outbacks, but a bit roomier than an Impreza).
Although the Crosstrek had been my dream car for as long as I can remember, I wanted to ensure that I wasn’t limiting my options. So, I made a list of my “must have” features and those that I would enjoy having but wouldn’t be a deal-breaker (aka – the “nice to have” features).
Here are a few of my “must haves”:
- Full touchscreen (Apple/Android CarPlay included to help with navigation, music, etc.).
- Water-resistant mats.
- Privacy cover for the cargo space.
And a few “nice to have” features:
- Extra safety features (lane assist systems, blind spot detectors, etc.).
- Sun (or moon) roof.
- Leather seating.
Identifying these features not only helped me to narrow my search to makes and models that would fit my needs, but also helped me to set parameters around what I really needed in a car, and what features I could live without.
Once I had identified what makes and models would meet my needs, my next step was to determine my budget.
A crucial thing to remember when car shopping is that the sticker price is not necessarily what you will be paying. It is important to include taxes and costs associated with registering the vehicle as part of your budget. For me, I estimated these costs would be about 15% of the vehicle cost (this can vary by state and county). Knowing I had some cash set aside for a down-payment and that I would have to take out a loan to finance the remainder of the car, I outlined my budget at about $25k (or less, all-in). This limited me to more “basic models” that were likely less than 5-years old and had 75,000 miles (or less).
While I ultimately decided to go with my initial choice – the Crosstrek, I did look at other crossover SUV’s such as the Chevy Trax, Honda HRV, Mazda CX3, and Jeep Renegade.
Since most of these vehicles checked the boxes on my “must haves”, I focused on the “nice to have” features. I found that the overall look and feel of the Crosstrek (both interior and exterior) fit my personal style the best. Although I found many positive reviews for the other vehicles as well.
Buying or Leasing? Finance or Cash?
We often get the question from clients – should I buy or lease? When determining the right option for me, I considered the following:
- How long will I plan to own this car?
- My last car lasted nearly 10 years, and I was planning to keep this next car for at least 5 – 10 years. Knowing this, my inclination was to buy the car.
- If it was important to me to have a newer car every handful of years, I may have been more interested in a potential lease.
- How often do I drive? And how far?
- With my family and friends spread out around the state and knowing my love for road trips – I estimated that on average, I drive about 10k – 15k miles a year.
- When leasing a car, there are typically limits to the miles which you can drive each month. If you do decide to lease a vehicle, make sure you understand the mileage limits and any associated penalties for going over these limits.
Another factor in your car-buying decision is to pay all cash or finance the vehicle. At first, I felt averse to the idea of taking on debt to purchase a vehicle – I had never had a car payment before, and I liked the idea of keeping my monthly “bills” low. However, as a young adult, one of my top financial goals is to continue building my credit and financing my car would help me to reach this goal.
Additionally, one of my goals is to maintain an emergency fund of 3 – 6 months of non-discretionary expenses. If I were to try to pay all-cash for a car, I would have depleted my cash savings below my 3 – 6-month threshold. Since this is another important goal of mine, I decided this was something I was not willing to budge on – which also led me to finance the vehicle.
Finally, knowing how much I had set aside for a new car purchase, I realized that I would not likely be able to afford a vehicle that met all my “must haves” without taking on some additional debt. I researched current interest rates (at banks, local credit unions, and talked with the financing department at dealerships) to help me understand what my monthly payment would be.
Here are some additional factors to consider:
- What is the “cost” (interest rate) of the debt? Is this more or less than you could be earning if those dollars were to be invested?
- What is your overall debt-to-asset ratio?
- For those in the “accumulation” phase of your life (i.e. starting your career, accumulating some cash and retirement savings), your debt-to-asset ratio is likely higher than it will be later in your life (as you ramp up earnings, savings, and approach retirement).
If you do decide to finance the vehicle, remember that you can typically refinance a vehicle later and/or make accelerated payments. I initially financed my car through the dealership but later was able to cut my rate in halfby refinancing the loan through a local credit union!
Research, Research, Research
There is a lot of information available online about vehicles, and it can be daunting when trying to find exactly what you need. I found the following resources to be helpful in my search:
Comparing cars and general information
Finding and buying a car
As I was car shopping, I spent some time on the front end doing a lot of research for which car I would like and what would best fit my needs. I also watched car reviews on YouTube (some of which get pretty “in the weeds” focusing on particular details related to engine capabilities that I didn’t find as relevant or important to me), but I did appreciate some of the reviewer’s insights on other specs and features. Here are the channel’s I found to be helpful:
Asking for Help
There is no reason for you to feel alone in your car search. Don’t hesitate to ask questions of the people you trust. There is even likely someone in your personal or professional network who has quite a bit of experience with (or passion for) vehicles. Get second opinions. Bring someone along for test drives. Take your time and weigh all your options before deciding what’s best for you.
While this is based on my own shopping experience, prioritizing what you want and balancing that with what you need and can afford comfortably are key to making a smart decision about your first set of wheels.
On a final note, I did buy a new car last year, and I couldn’t be more satisfied with my purchase. I wish you luck in your search!
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Private Ocean, LLC [“Private Ocean”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Private Ocean. Please remember that if you are a Private Ocean client, it remains your responsibility to advise Private Ocean, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/ evaluating/ revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Private Ocean is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Private Ocean’s current written disclosure Brochure discussing our advisory services and fees is available for review upon requestor at www.privateocean.com. Please note: Private Ocean does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Private Ocean’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please also note: If you are a Private Ocean client, please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.