A guide for first-time car buyers (1)

Buying your first car is no small thing. In fact, it might be your first adult purchase — which is worth celebrating! 

A big purchase like this requires — you guessed it — a lot of prep and research. If you’re intimidated by your first car purchase, allow us to take the wheel. 

This guide covers everything you need to know — from saving for a down payment to choosing the right car. 

What to know before car shopping 🚗

The truth is — there’s a lot to research before you ever step foot in a car dealership. Here are a few important terms to know first.

Used car vs. new car

One of your first decisions is whether to buy a new or used car. So, what’s the difference? New cars are more expensive — as of 2023, the average price of a new car is $48,763 — but they often come with warranties and updated features. 

Used cars, on the other hand, typically cost less but have higher mileage. They also may have prior damage. If you opt for a used car, take it to a trusted mechanic for a full report and download its CarFax report before buying.

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Leasing vs. buying

Leasing means you pay a monthly fee to use a car for two to three years. When the lease term is up, you return it. 

Conversely, buying a car means your monthly payments go toward ownership. The car is yours to keep or sell once you pay it off. 

Car depreciation

Cars are depreciating assets, meaning they lose value over time. 

How does that affect you? Picture this: You’re considering two cars. They’re the same make and model, but one car was made in 2020 and the other in 2022. Both cars have the same features and a similar vehicle history. The 2020 car may have slightly higher mileage, but it likely costs less than the 2022 car — thanks to depreciation! Since the cars are so similar, you may be able to save money by purchasing the 2020 version. 

Types of cars to consider

TL;DR: Car shopping means making a lot of decisions. And deciding what type of car to buy might be the most important. 

Each type of car has its own look, feel, features, and price point. Let’s review!

• Sedan: Sedans are small cars with three main components. The engine, the passenger area (which typically includes two rows of seats and four doors), and the trunk. Sedan trunks are sealed off from the passenger seats and must be accessed from outside the car. Sedans make great first cars for teens because they’re small, easy to take care of, and usually cost less than larger cars.

• Hatchback: A hatchback is similar to a sedan but has a different trunk configuration. A hatchback’s trunk is connected to the passenger area, like a larger SUV or minivan. 

• SUV: SUVs are larger than sedans or hatchbacks. They’re higher off the ground and have more trunk and passenger space. Some sedans even have a third row of seats. Like hatchbacks, SUVs have large trunks connected to the passenger space. 

• Sports car: Sports cars are made for performance rather than comfort. They accelerate quickly, have excellent handling, and are often smaller than sedans. 

How to prepare for a purchase

Now you know the basics, let’s cover what happens before you buy a car. 

1. Work on your credit score

Improve your credit by paying bills on time and not canceling credit cards for a few months before car shopping. A good credit score helps you borrow money at a lower interest rate. And a lower interest rate means lower monthly car payments. We’d call that a win. 

You might think, ‘What if I don’t have a credit history?’ Don’t worry! Many teens don’t. If you’ve never had a credit card — or only had one for a short time — you may not meet a lender’s typical borrowing standards. However, some lenders and dealerships offer first-time car buyer programs for young drivers. So you can get an auto loan even if you don’t meet standard credit requirements.  

2. Save for a down payment

Buyers typically pay at least 10% of a car’s price upfront as a down payment. The first step toward saving for yours? Set a goal amount and set aside a percentage of each paycheck or your allowance. 

Greenlight tip: With Greenlight, teens learn to save, invest, and earn. Plus, they earn up to 5% on savings.*

3. Do your research 

It’s important to know what you’re looking for before going to the dealership. The Insurance Institute for Highway Safety and Kelley Blue Book are great online resources for checking safety ratings, crash test results, and the value of different cars.

As you look at various makes and models, list the features that stand out — like a lane departure warning system, start-stop system, or sunroof. Keep track of each car’s model year because designs and features change from time to time.

Pro tip: Write down car prices as you research and adjust your down payment savings goal if needed.

4. Get pre-approved

Pre-approval is when a lender conditionally approves your loan before you buy the car. Knowing how much money the bank will lend, and at what interest rate and loan term, helps you negotiate and stay within your budget at the dealership. Plus, you don’t have to wait for approval when you find the right car.

Car dealerships also offer financing options — meaning they’ll connect you with a bank and arrange the loan on your behalf. However, they typically offer higher interest rates, so looking at lenders first is a good idea. 

5. Shop around

Shopping at multiple dealerships is a great way to check out different cars. Each dealership usually offers one car brand — although they may have various used cars too.

Let’s imagine what it looks like to shop at different dealerships. 

After researching, you decide to get a new sedan. You’re pre-approved for a $30,000 auto loan. First, you go to a Honda dealership because you’re interested in a trusty black sedan. You test drive the car and love it! However, you want to try a few others before making a decision. Next, you head to a Toyota dealership to test drive a similar car. You like that it’s roomier, but the Honda has more of the features you’re looking for. You head back to the Honda dealership, and — since you’re pre-approved — you negotiate a price for the car and drive it off the lot!

Shopping around helps you compare cars in person. After all, sometimes you need to see — and test drive — a car before buying!

Save for your first car with Greenlight

A big life event — like buying your first car — is expensive. But it doesn’t have to break the bank. 

Take William — a high school student that used Greenlight to save for his dream car. Impressive! 

Want to save for a car of your own? Learn more about Greenlight, the debit card and money app that teaches kids and teens how to earn, save, and invest.

*Greenlight Core families can earn 2% per annum, Greenlight Max families can earn 3% per annum, and Greenlight Infinity families can earn 5% per annum on an average daily savings balance of up to $5,000 per family. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time. **Greenlight Max and Infinity families can earn 1% cash back on spending monthly. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time. ***Requires mobile data or a WiFi connection, and access to sensory and motion data from cell phone to utilize safety features including family location sharing and driving alerts and reports. Messaging and data rates and other terms may apply.