Buying a car for the first-time is a journey, and it can be a bit daunting. To make the process as easy to navigate as possible, consider following the pointers listed below.
Before Car Shopping
Before you begin shopping for a car, it’s worth taking the time to do some preparation. In particular, you’ll want to make sure you’re in a good financial situation to handle the cost.
Determine your budget
Your budget is the first item you should look at, particularly concerning how your monthly income compares with your existing financial obligations. Typically, it’s best to see that your car loan payments are no higher than 10% of your monthly income, but it ultimately comes down to what will fit most comfortably in your budget.
Keep in mind that the longer the car loan term you go for, the lower your monthly payments will be. However, it’s generally best to go for as short a term as you can afford.
Improve your credit score
Do what you can to improve your credit score before car shopping. This can get you better rates on car loans and put you in a better bargaining position. Some ways you can improve your credit score include:
- Paying bills on time
- Keeping your credit utilization low
- Checking your credit report and filing for corrections to any errors you may find
Note that these can take time to have an impact, so start working on your credit as soon as possible.
Save up for a down payment
For new cars, it’s best to put down a 20% down payment, while used cars can get away with 10%. However, you should save up as much as you can to make a sizeable down payment on your car. This will keep interest rates down and allow you to pay it off sooner.
During the Shopping Process
When you’ve made some financial preparations and determined how much you can afford to pay each month, it’s time to start the process of choosing a car.
Used vs. new
One of the questions you’ll have to grapple with is whether to go with a new vehicle or a used one. Each has its advantages. For instance, new cars:
- Are less likely to have major problems
- Represent a lower risk to the lender, and thus may have lower interest rates
- May come with newer features
- Benefit from more financing options
On the other hand, used cars:
- Cost less upfront
- Depreciate less when you drive them off the lot
- Tend to have lower insurance costs
Which you choose depends on what your priorities are and how much room you have in your budget.
Assess car values
As you look around for the right vehicle, it’s smart to check each price against the blue book value. This improves your awareness of when a seller is asking too much and puts you in a better bargaining position.
Get an inspection
If you’re shopping for a used vehicle and find one you like, get an inspection done before you buy. This will give you an idea of what types of issues a vehicle might have, such as poorly done repairs, potential future problems, and so forth.
With a clear idea of what a vehicle is worth, you can haggle the price of a vehicle down. It’s often possible to get the price down 10% to 20% if you can afford a large down payment, are preapproved for a loan, or are planning to pay for the vehicle in full.
Completing the Purchase
With the right vehicle chosen, you may need to get financing. It’s a good idea to get going on vehicle financing before you start shopping to give you an idea of what you can afford. It also gives you negotiating power at the dealership.
To get approved—or pre-approved— as a first-time car buyer, follow these steps.
Get documents together
First, you’ll need some documentation to provide to potential lenders. These include:
- A drivers’ license
- Personal ID with your name, address, DOB, and social security number
- Proof of income, such as bank statements or pay stubs
- Proof of residence, such as utility bills or mortgage statements
- Proof of car insurance
- Vehicle information (make and model)
You may also bring in your credit report, but your lender will be able to look that up using your personal information.
Find multiple offers
To get the best deal possible, try applying for pre-approval with multiple lenders. That way, you’ll have a better chance of getting low-interest rates and favorable terms, and you may even be able to negotiate for lower rates from competing lenders.
Also, it’s generally best to avoid dealership financing unless you’re in a good haggling position (such as if you already have pre-approval from another lender).
Close on the loan
Once you’re approved for an auto loan and you’ve chosen a vehicle, it will be time to close on the loan. Your lender will walk you through the process, which will involve completing a bit of paperwork. They’ll process it, and if all goes well, approve the loan, allowing you to complete your purchase as a first-time car buyer!
Getting a Loan as a First-Time Car Buyer
An auto loan is often a necessary part of the car buying process. Most lenders can help you get started with applying for a loan and answer any questions you may have about loan terms, conditions, and so forth.