Purchasing a vehicle for the first time can be a daunting experience. This is especially true for teenagers who have just left high school or young adults leaving college and entering the working world. There are average vehicle prices that you will see depending on your income, needs, and ability to sustain the monthly payments.
According to the Kelly Blue Book, new vehicle’s average price as the first car is $37,000 and used vehicle’s average price as the first car is $20,000.
While many teenagers have their parents either assist in purchasing a vehicle or provide an older car or truck for their needs, many will have to purchase a vehicle on their own.
This means that the average price for a first car can vary considerably based on several factors. The truth is that there is no average price since everyone’s needs are different.
Keep in mind that such figures do not account for vehicles that are leased. A lease agreement is paying monthly for a vehicle over a pre-set time. At the end of the agreement, you can either turn in the vehicle or pay the difference to own it.
Related: Difference Between Leasing and Financing a Car
In addition, the figures listed include several variables which affect the price you pay for a new or used vehicle.
- Vehicle Type
- Car Loan Balances
- Length of Car Loan
- Rising Costs
- Depreciating Value
Cars, trucks, SUVs, and vans make up most of the common vehicle types. Motorcycles and scooters are considered different types of motorized transportation. Overall, standard cars tend to cost less compared to trucks and SUVs. The reasons for this are two-fold. The demand for trucks, especially in certain parts of the US is quite high. And, trucks and SUVs depreciate at a lesser rate compared to cars.
It is important for those who are purchasing their first vehicle to understand that you are not investing like real estate. While real estate property tends to remain stable or rise over time, your vehicle will rapidly depreciate in just a short time. Trucks and SUVs tend to depreciate less because they are in higher demand. The more people want a specific type of vehicle, the less it will depreciate over time.
How to Buy Your First Car
Budget for Your First Car
The biggest factor in determining the average price for your first vehicle will be your budget. After all, if you cannot pay for it, then it is not the vehicle for you. Some factors go into determining your budget which will help you narrow down the choices.
- 15% of Take-Home Pay
- Average Insurance Cost
- $100 per Month for Fuel
Related: How to Conserve Fuel When You Are Running Low
The 15% rule is a good one for those who are trying to determine if they can afford a vehicle. This will depend on whether you qualify for a car loan. If you cannot qualify for a car loan, then obtaining a new vehicle will be quite difficult depending on your budget. You will probably have to shop at the used car lot market in that case.
Insurance for Your First Car
Car insurance tends to be quite high for those under the age of 25. This is especially true for those who are 16 to 21 years old as they present the highest risk in terms of getting into an auto accident. When you reach the age of 26 and you do not have an accident on your record, the auto insurance premium goes down considerably. There are ways to help mitigate the cost of auto insurance such as the following.
- Driving School
- Obtaining a Vehicle Recognized as Safer
- Driving Under a Pre-Set Number of Miles Each Week
- Getting Liability & Uninsured Motorist Insurance Only
Many insurance companies will take 5% to 10% off if you attend and pass a recognized driving school. Besides, some vehicles are determined to be lower risk, so focusing on them may lower your rates a little. But one of the best is keeping your driving under a pre-set limit each week. That may lower your insurance considerably, although you may have to demonstrate that you do drive less each week.
Finally, getting insurance that meets the state minimum requirements which are usually liability and uninsured motorist can save even more. However, if you are taking out a car loan, you will have to get comprehensive insurance that covers the damage to your vehicle. If you purchase the vehicle outright, then you choose the type of insurance.
Your profession or medical condition may require that you drive a certain type of vehicle. This will play a strong role in how much you pay when purchasing your first automobile. If you make deliveries, have specific requirements based on your physical abilities, or need to carry special equipment, then that must be accounted for when making the purchase.
The total amount of your monthly payments that go towards your vehicle, fuel, and insurance should not exceed 22% of your budget. By sticking to that, you should be able to afford your vehicle depending on other financial requirements.
Now that you know what you can afford in terms of price, the next step is choosing between the new and used car markets.
Your First New Car Market Price
New vehicles offer considerable advantages over used vehicles. The most important of which is their reliability. As with any mechanical device, the more it is used, the more likely it is to breakdown. Given the higher quality of new vehicles being produced today, you should expect a new car, truck, or SUV to provide reliable service at least for the first five years or so.
This doesn’t mean that the vehicle will not break down, but the chances of a breakdown on new vehicles are considerably less compared to older, used vehicles. Shopping on the new car market will generally mean the following.
- Higher Purchase Price: Average is $37,000
- Better Chances of Auto Loan
- More Warranty Coverage
Keep in mind that the average price for a new vehicle includes luxury models that tend to drive the average up considerably. Many good quality new vehicles can be purchased for well under $30,000. This is especially true of compact models that offer good mileage and can be found for $20,000 or even less.
Plus, the chances of getting an auto loan are better because the vehicle is brand new. This means that it will depreciate at a slower rate compared to a used vehicle. Lenders are more willing to take a risk on a new vehicle compared to one that is five or more years old.
Finally, many vehicles come with warranties that cover most of the parts over the first two to five years. While warranties generally do not cover brakes, tires, and oil changes, they often cover parts that may breakdown on their own. This means that your repair bill may be considerably less if the warranty covers the part that has failed.
However, the downside to the new car market is the price. You will pay more for the vehicle and more for the insurance to cover the auto loan. If you had enough money to pay for the new vehicle without a loan, then you are making enough not to worry about finding the right price for the car, truck, or SUV.
Your First Used Car Market Price
If you find that the new car market is out of your price range, then you can try the used car market. There are definite advantages if you are on a tight budget. Plus, you can get some good deals, especially if you have a large down payment or can pay for the vehicle outright.
- Lower Car Price: Average is $20,000
- Lower Insurance Cost
While the average price is $20,000 for a used vehicle, you can often find them considerably less depending on their age. Plus, you can cover them with a lower insurance package that can save you money each month as well.
The downside is that used vehicles have warranties which are quite limited if they exist at all compared to new vehicles. This means that you are paying for repairs out of pocket. Plus, the lower insurance price, if you pay for the vehicle outright, means that you are paying more to repair your vehicle if it was in an accident.
Whether you choose a new or used vehicle, keep in mind the average price that you will pay for your first car, truck, or SUV. There are ways to lower that cost and by the time you purchase your second vehicle, you will know considerably more about the monthly cost associated with running your car, truck, or SUV. This will help you make the best-informed decision about what you can and cannot afford when purchasing your first vehicle.
Benjamin is a certified financial advisor, with over 10 years of experience in the industry. He is knowledgeable about various business and financial topics, such as retirement planning and investment management. Ben has been recognized for his work in the financial planning industry. He has also been featured in various publications.