Sense & Centsibility Blog

Being Smart While Buying A Car

New carAlthough it has been awhile, I can still remember when I first thought about buying a car. Truth be told, it was on my mind before I had a driver’s license. Talk about putting the cart before the horse! Although I never actually bought that little red Mustang (today it would be considered a collector’s car), I have learned a few tips about buying cars over the years.

Buying a car is an expensive undertaking. Even if you don’t have monthly car payments, there are still ongoing costs for insurance, gas, maintenance, licensing, and repairs. So, it is best to determine if you can really afford a car before you buy one. Be sure to avoid impulse buying or letting your emotions control the purchase. The last thing you want is to find your dream car only to have it repossessed, or fall apart because you can’t really afford it.

Ideally, you should not spend more than 20% of your monthly income for all vehicle expenses, including payments. This percentage can be more but only if other expenses are minimal and will stay that way while you make car payments.


Used carAlthough a shiny new car has its appeal, the average cost for a new car these days is close to $20,000. And that’s for something plain and simple. Even if you buy a basic model, there are additional costs such as taxes and licensing that will jack the price tag by several more thousand dollars. And as soon as you drive that car off the dealer’s lot, the value declines substantially…think thousands of dollars.

You can find used cars that are only 2-3 years old in excellent condition for thousands less than new. Often, they are still under the manufacturer’s warranty so if something goes wrong, repair costs may be covered.

There are many online sites offering estimated market values of used cars so you don’t overpay. If you buy through a dealer, have a family member or trusted friend who has been through the process go with you. Some car sales agents can be pushy and make you feel like you have to buy now or the opportunity will disappear. They are playing on your emotions - so don’t fall for it. Always take at least 24 hours to think over any major purchase. For more information, read this blog on the costs of buying new versus used.


Saving for a used car and buying it with cash is the ideal way to go. However, in all honesty, I have never been able to do that myself. So, if you must finance, be sure to look at all the pieces of the financing puzzle.

  • Down Payment: Save as much money as you can before you go car shopping. Your down payment is crucial because it affects how much your car payments will be and how long you will make them. Remember this: the less you save, the more you will pay over a longer period of time for your car.
  • Loan Interest Rate: Shop around for the best interest rate you can find. Typically, the best rates will not be from the car dealership. If you are young with no real credit history, you may need a co-signer to get financing. You should know that anyone who co-signs your loan will be liable if you do not make the payments. Therefore, if you ask someone to co-sign, be prepared they may say no. And always do your best to make your payments on time. This will help to build your own positive credit score and keep your co-signer off the hook.
  • Loan Term: A new car loan should never be longer than 60 months, and a used car loan should be 3 years or less. If you stretch out the loan any longer, you will pay more money in overall interest charges. If you can’t pay off a loan in these timelines, it simply means you can’t really afford the car. So, move on and find one that works for your finances.
  • Payment Amount: Most car buyers base their purchase decision on whether they can afford the monthly payments. If you follow the advice above first, that should work well. If not, don’t be surprised if you find yourself struggling to make payments. Once you are locked into a sales contract, it’s a real challenge to make changes that suit you better.


Car ownerWhether from a car lot or a private seller, always have the car checked by a trusted mechanic. If you don’t know any, talk with your friends, family members, or teachers to find out who works on their cars. You don’t want any surprises that could have been discovered by taking this prudent step. Contact the mechanic to find out how much it will cost to look over the car. No matter the price, it will be money well-spent!

Also, ask for copies of maintenance records from the dealer or private seller. You want a car that has been maintained regularly according to the manufacturer’s recommendations.

You may also want to check the history of the car through an online auto report system to find out if it has been in any accidents, floods, or other major disasters. I can’t speak for the accuracy or trustworthiness of those reports, so be sure to first check into the company by contacting the Better Business Bureau or your state’s Department of Commerce.

You don’t want to regret a major purchase like this. So if you do your homework and follow the above tips, you will likely remember fondly your first set of wheels.

For anyone with a new or used vehicle, check out "8 tips to improve your gas mileage."

Want to create your monthly cash flow plan to determine if a car payment is affordable? Give LSS a call at 888.577.2227 to schedule an appointment. Our Financial Counselors will help you figure that out and achieve whatever your financial goal may be – whether it’s conquering your debt or building up savings for a down payment. So don’t wait…take action today to improve your finances and achieve your goals!

You can also get started with an online budget session right now by clicking get help now.

Author Barbara Miller is a Certified Financial Counselor with LSS Financial Counseling and she specializes in Bankruptcy Counseling and Education.