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Financial firsts: Buying a new car requires careful consideration
Your first new car is an exciting experience for most people. But make the most of it by knowing how to go about getting the best deal possible. - photo by Jeff Wuorio
When it came to buying her first new car, Jessica Winstead had the luxury of already owning a reliable used car. That made all the difference.

It was actually a great car buying experience because I took my time and wasn't in an emergency to buy a new car, said the 27-year-old marketing strategist from Los Angeles. I had the luxury of patiently waiting for the one I wanted to be available.

While Winsteads experience may have been more relaxed than those of other car shoppers, shes part of a large crowd of consumers. According to the Kelley Blue Book, new vehicle sales were expected to increase nearly 12 percent to a total of 1.43 million by the end of October 2015 the highest October sales levels in more than a dozen years. That adjusts to an estimated 17.9 million annually.

But investing in a new car mandates a careful, systematic approach. Here are five steps to make it as cost-effective and successful as possible.

1. New versus used

The first issue to be considered is whether to go with a new or used car. For Winstead, opting for a new model fell in line with her history of owning a car for a long time. A new car offered better chances for long-term reliability.

But that choice may be more involved for other shoppers who weigh other pluses and drawbacks. New cars offer the security of a long-term warranty, up to date features and no murky "history" that can plague used models.

Previously owned models are inevitably less expensive, less expensive to insure and, in some cases, may still be under warranty.

"There are a lot of used cars out there that are less than a year old that still have the original warranties intact," said Janet M. Nast, author of Shifting to the Business of Life: A Survival Guide For Young Adults. "Ask, because sometimes this is a good point for negotiation."

AutoTrader has a helpful new versus used guide here.

2. Research and test drives

Having driven the same car through high school and college her parents gave her a car when she was 16 Winstead knew what she wanted in a new model: Since I owned my previous car for 10 years I was looking for a car that was just as reliable if not more so because I knew I'd want to keep it for a long time.

She put in months of legwork, reading car buying guides and considering various options. Since her current car a Hyundai Tiburon was easy on fuel, gas efficiency was a top priority and helped pare down her new car wish list.

Priorities are paramount, said Steven Paul, owner of Test Drive Technologies, a mobile vehicle inspection service in St. Louis. This is possibly the most important thing a first time car buyer can determine for themselves. Some car buyers go full throttle.

With an eye on hybrids and reliability, Winstead focused her attention on several Honda models. She test drove several different cars but immediately noticed an appealing difference when she took a CR-Z out for a spin.

I knew when I got into the CR-Z that I would drive it off the lot because it had all the familiar feels of my former Hyundai coupe that I had come to love, she said. The best part for me was better visibility through the hatchback, since the CR-Z has a window that extends all the way down the hatch instead of just a window that cuts off the bottom half of my vision.

The car buying service Edmunds has a helpful and comprehensive guide to test drives here.

3. Purchase price and financing

Winstead knew her financial goals and limitations before walking onto the sales lot zero down if possible, an interest rate of less than 3 percent and no more than $400 in monthly payments. Purchase price was key since I didn't absolutely have to buy a new car yet and I wasn't willing to pay more than I could afford.

Dealers offer financing, but that may not be your best option. If youre a member, reach out to your credit union, said Harrine Freeman, author of How to Get Out of Debt: Get an A Credit Rating For Free. Often, they have particularly advantageous terms for members. Moreover, as Winstead did, establish the absolute maximum youre willing to pay and stick to it.

Set a maximum price you are willing to pay and can afford, Freeman said. Your total monthly transportation expenses should not exceed 25 percent of your income, including your monthly car payment.

Pay attention to the expected add on fees that can boost the bottom line price. While some are standard such as delivery and title charges others can be negotiated, such as advertising fees that dealers tack on to offset marketing charges.

Lastly, if youre inexperienced in negotiating and working out the specifics of auto financing, lean on someone whos been there before. Winstead asked her parents for advice: Without their help I most likely would have ended up paying more.

4. Shop for insurance

Insurance was rather straightforward in Winsteads new car purchase. She simply obtained coverage through the company that had insured her prior vehicle.

It may not be quite so automatic for others. Start by contacting the states motor vehicle department or an insurance agent to find out whats required where you live. Driving uninsured or with inadequate coverage can lead to fines, criminal charges or losing your drivers license.

Cost of coverage will vary according to individual companies, type of car, where you live and type of coverage.

For instance, since used cars are generally worth less than new, necessary insurance will be less expensive. While a new car may mandate more costly insurance, your premiums will go down if you opt for a higher deductible.

Shop aggressively and ask about any coverage wrinkles. For instance, some auto insurers may require that you choose from a preselected list of shops for any repairs, said Nast.

5. Know your warranties

New cars come with warranty packages covering repairs and routine maintenance. Some are exceedingly generous. Hyundai, for instance, offers a five-year, 60,000-mile limited new car warranty and extends that to 10 years, 100,000 miles for the powertrain. When shopping, be sure to know what warranty is included in the price and what it covers.

Some car owners opt to pay extra for extended warranty coverage, although consumer authorities often advise against it. A recent Consumer Reports survey found that 55 percent of owners who purchased an extended warranty never used the policy despite spending more than $1,000 for the extra coverage.

That wasnt the case with Winstead. I had the extended warranty on my previous car and used it many times in the 10 years I had it, so it definitely made sense to buy it again.
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