Once you have an idea of the type of car you want, you need to decide whether to buy new or used. Here are some factors to consider:

• Price - New cars can be expensive. They also depreciate quickly, meaning they begin losing value as soon as someone buys and begins driving them. That’s one reason the price on a used car can be so much lower than its new-model counterpart. Other reasons include mileage and condition.
• Mileage and condition - The more mileage and wear a car has, the more likely it may be to require repairs. If the car wasn’t well cared for by its previous owner, those repairs could end up costing you quite a bit over time. Before buying used, check the vehicle history report and consider having a mechanic look the car over.
• Cost to insure - Car insurance is important because it protects you and other involved parties should an accident or other damaging incident take place. It’s also required in most states, although requirements vary. The cost of car insurance varies, too, depending on factors including: the year, make and model of car; where you live; your age and any previous accidents you’ve had. The insurance premium for a new car can be as much as twice that of a used car. Shop around before you make your choice to make sure your budget can withstand the cost of the policy you’ll need.

A car loan gives you the opportunity to pay for your vehicle (new or used) over time if you don’t have enough cash on hand to buy it outright. Typically offered by a financial institution, an auto loan has a set term and either a fixed or variable interest rate.^[5] (Learn more about how financing works.)

Some lenders have special loan offers and interest rates for students who are just getting started building their credit histories.^[5] They will need proof that you are able to repay a loan, however, so be prepared to:

• Show that you have a steady source of income.
• Share your good credit score, if you’ve established one.
• Have a co-signer lined up in case you need them.

You should apply for an auto loan only if you are certain that you will be able to make the monthly payments, on time every time.

If you don’t qualify for an auto loan on your own, because either your income or credit history doesn’t meet the lender’s criteria for loan approval, then you will be required to have a cosigner on the loan. A cosigner is an individual — often a parent or other trusted family member or friend — who agrees to repay your loan in the event you are unable to fulfill your obligation to pay it back. Their signature provides the lender with reassurance that the loan will be paid back in full.

As you decide whom to approach to be your cosigner, keep in mind that you’re asking them to take on some risk: If you don’t repay your loan, they have to. Also, if you make one or more late payments, or you default on your loan, their credit could be negatively affected just as yours could. These potential consequences reinforce the importance of being certain about your ability to repay a loan before you sign the loan agreement.

If you’re trying to decide how much you can afford to spend on your first car, getting pre-approved for a loan is an excellent step. When you are preapproved for a first-time auto loan, the financial institution will likely take into account your credit history, income, and other factors to estimate the amount you will qualify to borrow.

Whether you’re looking for something new or used, there are three options to look at when it comes to where you will buy your first car. You can:

• Buy from a dealership
• Buy from a private seller
• Buy out the vehicle you’re leasing

Each of these come with their own pros and cons, but which is best for the savvy first-time car buyer? Let’s briefly explore each option to see.

Buying Your First Car From a Dealer

As a first-time car buyer, working with a dealership may be your safest option. The process will be fairly straightforward. You will test-drive and inspect the car, negotiate a price, sign the necessary paperwork and then be on your way. While securing payment first is not necessary, it will help the experience go more smoothly and help you get more attention from salespeople.

But why is it a safe option? The main reason is that dealerships are responsible for disclosing problems the vehicle might have or repairing those issues before selling it to you. If you’re buying a new vehicle, you will also receive a warranty built to protect your investment through the first few years of ownership.

Please keep in mind that the price you end up paying will not be the same as the sticker price on the car. While that may be what you pay for the vehicle itself, you will also have to cover fees for documentation, prep and delivery, sales tax and any additional accessories or extended warranties that you may choose to purchase. While buying your first car from a dealership may be safer in some respects, it may also end up being the most expensive because of these additional expenses.

Buying Your First Car From a Private Seller

You’ve been looking on third party marketplace sites and you've found it–the perfect first car. But it’s just an individual selling it. Or maybe you’re even looking to buy a used car from a friend or family member. How does this work?

In short, buying from an individual is very similar to buying from a dealer. You’ll have to fill out some of the same forms and get a loan if the vehicle is more than you can afford.

Here are the key differences to be aware of:

• There are no dealer fees on private sales.
• Private sellers do not have the same obligation to disclose flaws.

There are, of course, pros and cons to this. The biggest pro is that an eager private seller is probably going to give you a much better price than an established dealership. The biggest con is that you’ll have to scrutinize every inch of the vehicle before purchasing to make sure you’re buying a reliable first car and not just inheriting someone else’s car problems.

Tip - Don’t be afraid to ask the seller if you both can take the car to a mechanic for a thorough check prior to purchase, and always run a vehicle history report on the vehicle to see if it’s had any reported issues in the past. These extra steps could save you a lot of trouble in the long run.

Buying the Vehicle You’re Leasing

If you’re leasing a car, then you’re already familiar with having a monthly car payment, and by having that, you’ve built up some credit history. Well done you!
Naturally, the next step is buying your own car. But you like the car you’ve been leasing. If only there were some way you could just keep that car. Guess what–there is!

If you want to do this, you will need to talk to the finance company you’re leasing the car from to determine whether or not a lease buyout is possible. In some instances, you won't be able to purchase the vehicle until the end of your original lease contract.