Introduction to car buying | Car buying | Financial Literacy | Khan Academy

- So you're looking to buy a car.

So, I'll at least tell
you how I would approach

buying a car.

The first thing is thinking
about what you can afford.

And, I would think about that before

you even look at the types
of cars you might wanna buy.

Because it could be very
tempting to get some car,

and then somehow rationalize
that you can afford it.

So, look at your budget,

look at how much money you can,

you think you can put aside.

Let's say, every month.

Either for a payment on
a car, to lease a car,

or to save up for a car.

And if you're going to
be financing the car,

or getting it on a lease,

you're also gonna have to
put some money down there.

But think about that, what you can budget.

And then, whatever amount that is,

remember, it's not just gonna be

for the payments on the
car, or the cost of the car.

It's also going to be
needed for things like gas.

And things like insurance,
and maintenance.

And maybe even a parking spot,

if you need to pay for
where you're going to

actually keep your car.

So, keep all of those things in mind.

Now, once you have that in place,

you can think about what kind
of car you're going to buy.

And, I really encourage you to think about

the car that you need,

versus some dream about
what you might want.

I think all of us are, as human beings,

we are very susceptible
to market, marketing.

We imagine, "Hey, if I had this car,

"my friends are gonna say
this, this, and that."

Usually they won't care.

And almost any car you buy,

even if it's a super-fancy
exotic sports car,

within a week or two, it's
gonna get old. (chuckling)

And you're gonna realize
it's just something

to get from point A to point B.

So, think about what you need.

How much capacity, storage,

how many people are you
gonna be transporting?

In terms of cost? Gas.

How much gas it is using?

And it's not just the cost of the gas,

but the convenience, or the inconvenience,

of having to stop for gas
if you're driving a lot.

Think about, when you think
about the cost of the car,

don't just think about how
much you're paying for it.

Or, don't just think about the payment

that you're making on either
the financing, or a lease.

Think about what that car
might be worth in five years,

or 10 years, however
long you are taking it.

So, there are definitely scenarios

where Car A might cost more than Car B,

but the amount that they have depreciated,

over say five years,

the more expensive car
has depreciated less.

So the cost of owning it,

if you sell either car after five years,

the cost of owning the more expensive car,

in some cases, not always,
it's usually not the case.

But sometimes it is,

the more expensive car
could actually be cheaper,

because it has a higher resale value.

Once you figure out the
type of car you're getting,

and even if you could afford more car,

I do encourage, get the car you need.

And if you have surplus money,
put it into your savings,

invest it, like in all the other videos

that we've talked about.

But now you're ready to go,

to actually go get the car itself.

Now, if when you're selecting
a car, be sure to test drive.

Think about the warranty if
you're getting a used car.

Make sure you get the vehicle
identification number,

the VIN number, so that you can make sure

that it hasn't been damaged,

it hasn't been in an accident before,

there isn't some shady history
associated with the car,

that you don't know about.

And then, once you identify a car,

everything looks good,

it looks like a car you can afford,

it's the car that you need.

Then, you have to think about
how you're gonna pay for it.

And of course, if you've
saved up money for a car,

maybe you could pay with cash,
or significant down payment,

finance the rest.

Financing, as we talked
about in other videos,

it's gonna be dependent
on your credit score.

Definitely look carefully
at the interest rate.

And then, leasing could also be option.

Now leasing, if you own
a business of some kind,

especially a business that requires a car,

a lease can be interesting,

because it might be tax deductible.

So it helps to reduce your tax burden.

But in most cases,

a lease ends up when you do the math,

actually becomes more
expensive than financing it.

And there's some limitations
to leasing, as well.

You can only drive it so many miles

over the course of a year.

Beyond that, the company might charge you.

And then, you might lease
it for two or three years,

and then after that point,

you have to get in another lease.

Sometimes they will
allow you to buy that car

at a discounted price.

But once again, usually
you should do the numbers.

It's gonna cost a little bit more

than if you just bought it out right,

or if you were to finance the car.

But think about how you're
going to pay for the car.

It's a very important consideration there.

And then, you get the car.

And there, the paperwork can
be really involved sometimes.

I encourage you, call ahead of time.

Do as much negotiating as
you can do on the phone.

It's like, okay, this is a firm price,

this is what we're gonna do.

Get them to say, "Yes."

And even on price, you can look up things

like the MSRP, the Manufactured
Suggested Retail Price.

And you can also look the invoice price,

which is essentially what the dealer is,

what it cost for the
dealer to get the car.

Now, if your car is on demand,

if there's a shortage, a wait list,

you're not gonna be able to
get close to the invoice price.

It probably will be closer to

the Manufactured Suggested Retail Price,

maybe even a little bit more,

if it's a really high-demand car.

But if it's not a super high-demand car,

there's a lot of inventory
at the dealership,

you could actually
discount a pretty good bit.

And you could even get invoice,

or in many cases, you
can even sometimes get

Be really thoughtful on price.

Don't necessarily,

unless it's an option
that you really want,

and usually you're gonna
have to get insurance

within a few days of
bringing the car home,

or sometimes you have to have
the insurance immediately

when you get it.