There are three steps involved in buying a first car: finding the ideal car for you, determining the price of that car, and securing the financing to go with it. Here’s the nitty-gritty of getting a car for first-time car buyers:
Credit Score Affects Car Loans
According to Experian, one of the three major credit bureaus, two-thirds of new loans are granted to buyers with good credit ratings. A good credit score is a gauge of one’s capacity to repay a loan. Lenders generally grant better interest rates to buyers with good to better credit scores. If you’re thinking about buying a new car, fix your credit ratings first. Doing this can not only help you get a loan for a brand-new car but can also help you get one with better interest rates.
What if you can’t fix your credit rating or have no credit at all? Talk to the lender to see if they can provide you with other options. They may require you have a cosigner to get approved for a loan.
Establishing a Budget
The rule of thumb is to determine the amount that you can comfortably pay over a three-year period. Going beyond this could mean having to pay late payment penalties or possibly defaulting on the loan.
Review your financial standing and find out how much you can really afford to pay for a new car. Use a budgeting calculator to help with this. You should also calculate your total debt. Ensure you don’t incur too much debt when you add in the expenses for the new car. This can help you avoid encountering late payment penalties.
How Financing Works
You’ve already found your dream car and now you want to find out the next steps. How do you actually acquire the car?
- Down payment. This is the initial amount you put down on your new car. Some dealerships may or may not require a down payment, however this is something that you need to consider. If you have the funds, put down a bigger down payment. Why? You can pay off the loan earlier and it can reduce the interest that you pay over time.
- Work with your own bank or credit union. You can finance your car loan with the dealership, however, financing it with your own bank or credit union will generally help you get a better interest rate.
- Get pre-qualified for a loan. You will usually be in a stronger negotiating position with the dealership if you pre-qualify for financing. If possible, do this before attempting to buy a new car.
Thankfully, it’s generally fast and easy to pre-qualify for financing. You usually only need to fill out a few fields of information including, your contact information, employment status, income, or provide a co-applicant’s information, if needed.
Go over the different financing options and choose the one that best works for you and your financial status.
What About A Used Car?
There are pros and cons to buying a used car. To find the best one for you, do proper and careful research. Get the basic history of the previously owned car you want to purchase. This will give you an idea as to the potential problems it may have. Inspect the vehicle thoroughly and do a test drive. If possible, get a car mechanic to help you with this.
Buying a used car can be more affordable than buying a new one. If you’re low on funds, consider buying a previously owned vehicle.
Getting your first vehicle may be a tedious process, but it’s worth it. Don’t hurry; take your time. Make sure you will be happy with your purchase.
