How Financial Literacy Can Help You on Your Car-Buying Journey

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Familiarizing yourself with the fundamentals of financial literacy can help alleviate some of the pressure, save you money, and put you on a path toward responsible car ownership.

Capital One has partnered with Khan Academy to create an in-depth, classroom-style virtual program to help you learn how to buy a car.

We checked out the course. Here's what you need to know:

Car-Buying Basics

Before shopping for a new car, take into consideration that the price tag is only one portion of the final price. You'll also have to pay taxes and registration fees when you buy the vehicle, and then deal with another set of fees annually to keep it legally registered. The car will require maintenance as well, which can quickly add up.

Creating a budget for these additional expenses is a critical step to consider when you look at a car loan monthly payment calculator.

You may also be tempted to roll your tax refund into a new car, but a refund check from the government may include money that was already deducted from your paycheck — and that could have an impact on your overall household budget.

Buying vs. Leasing a Car

There are three standard ways to get a new or used car: buy it outright, finance it through a lender, or lease it. Each method has pros and cons, but none are as straightforward as you might think.

Buying a car — that is, taking ownership of it — can come either through acquiring it outright with a chunk of cash or in time by taking out a loan and paying monthly installments. Each method may or may not work for your particular situation, which is where having a basic understanding of the differences and terminology is helpful.

An alternative to buying the vehicle is vehicle leasing, which offers the ability to spend less on a monthly basis than financing. This may sound appealing at first, but there are many additional considerations as to how you can use the car and in what condition you must return it.

Regardless of which method you choose, you'll need to have the right documentation and be familiar with how your credit score can affect your ability to qualify for a loan or a lease.

Shopping for Car Insurance

Vehicle insurance requirements may differ from state to state, but it is mandatory in most states. Adding a vehicle plan to your insurance is a necessity in order to buy a car from a dealer, and you'll be required to present proof of insurance when you go to register your vehicle as well. Moreover, having adequate insurance is for your benefit and for those on the road around you, so it's ideal to know how to get a plan.

It can be a challenge to shop for car insurance if you're not familiar with the process or are unsure of the terms an agent might reference. Understanding terminology like deductibles and coverage levels will help as you explore different coverage plans and determine what is right for your situation. For more information on auto insurance basics and terminology, check out Unit 6: Car Insurance Options and Cost.

Ways to Detect and Avoid Scams

Car dealers are bound by a wide range of federal and state laws regarding how they can advertise and sell vehicles, though it's still worth knowing what potential pitfalls to avoid. There are far fewer restrictions for private sellers.

It's a good idea to know the possible pitfalls that could be avoided through consumer-protection laws in the United States. It can also be wise to understand how to file a complaint with local, state, or federal consumer protection agencies in the event things go awry.

Brush up on all of this and more by taking Khan Academy's free-to-you Car Buying unit at khanacademy.org.

Capital One and Khan Academy have a paid partnership related to the financial literacy courses.