10 Financing Tips for First-Time Car Buyers
by Alissa Johnson, Consumer Loans
May 26, 2021
- Consumer Loans
- Auto Loans
Are you thinking about purchasing your first car but unsure where to begin? You may be worried about the process, qualifications, or monthly payment. But you should know that it’s possible to secure an affordable loan on a car that you love to drive! To get to that point, you may need a few tips and strategies for financing that could save you time and money.
1. Know Your Budget
Setting a budget gives you a good idea of what to look for once you start shopping for a car. It also helps make sure you don’t overspend. To set a budget, consider:
- Your income
- Your expenses
- The amount you can comfortably spend on a monthly payment
Be realistic about what you want to spend. Remember, too, that there are various loan term options. That can help to keep your monthly payment lower. Still, you don’t want to agree to a loan that’s challenging to pay each month.
2. Know Your Credit Score
It’s a good idea to know your credit score. A higher score often translates into a lower interest rate. That makes it easier to qualify for an auto loan. If your score isn’t as good as it could be, try to pay down debt and make every payment on time. This makes it easier to qualify for a loan. However, as a first-time car buyer, you don’t need perfect credit to obtain financing. Keep in mind that at Fibre Federal Credit Union, we practice Rate Equality, so every qualified member receives the same low rate!
3. Get Pre-Approved
It’s always wise to get pre-approved for an auto loan before you start shopping, so you don’t get your heart set on a car that’s outside of your price range.
Pre-approval is an easy process. You’ll just need to provide some basic information about your income and expenses, as well as your identification. Then, your lender can help you determine if you qualify and for how much.
4. Shop Around for the Best Rate
Comparing interest rates is an important step in securing the right loan. A loan that has a slightly lower interest rate is more affordable. It may also save you thousands of dollars over the life of the loan.
Find lenders who may offer competitive and low interest rates as long as you qualify for their loans based on credit score. If you’re unsure what a lender’s qualifications are, ask upfront before requesting a formal loan.
5. Have a Down Payment Saved
One way to make your monthly payments more affordable and ramp up overall savings is by having a solid down payment.
A down payment is an amount you’ll pay at the time of purchasing the car. This amount reduces the total you need to finance with your lender. It helps you in other ways, too. A down payment shows the lender you’re committed to paying off your loan. It may also lower your interest rate.
6. Weigh the Benefits of Buying New vs. Used
Both options may be a good fit for first-time car buyers. There are a few things to remember, though.
- New cars tend to cost significantly more and depreciate faster.
- New cars come with peace of mind knowing they have a warranty. They also last longer.
- Used cars cost less and may be easier for first-time car buyers to obtain because payments are lower.
- Factor in the risks of maintenance and the used car’s overall condition.
- Determine what’s right for you – do you want to buy a car that will last for years or one that’s more affordable now that you’ll replace in a few years?
You can finance both new and used cars. However, used cars need to meet the lender’s qualifications in age, mileage, and value.
7. Consider a Co-Signer
If you don’t have a credit history, you may qualify with a co-signer. This person agrees to make payments if you fall behind. This may help you to qualify for a lower interest rate or better terms on the loan.
8. Let Your Car Salesperson Know What You Need
When you visit the dealership, make sure to share your goals with the salesperson. This includes how much you want your monthly payment to be. As mentioned above, consider getting pre-approval for a loan before shopping for a car. Or, ask for our financing right at the dealer! They can arrange a Fibre Federal loan for you while you make your purchase. Most local auto dealers participate in Credit Union Direct Lending (CUDL).
9. Get an Estimate for Auto Insurance
All lenders require you to obtain comprehensive auto insurance on your vehicle. Insurance on more expensive or higher-risk cars will be higher. Before you start shopping for cars, ask your insurance agent what you can expect.
10. Choose a Lender You Trust
Choose a lender who you can see yourself happy dealing with for the duration of your loan. You want to be sure they offer the tools you need, such as easy payment options and online features. You also want to know you can talk to a representative at any time you have questions.
As a first-time car buyer, you need to be confident in your decision. Your lender should make that possible.
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