Buying your first car can be a thoroughly overwhelming experience. And if auto financing is involved
you may as well multiply the anxiety by infinity.
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However, according to a recent study by Autotrader's Car Buyer of the Future, vehicle financing comes
in near the top list of stressors for car buyers. But the good news is first time car buyers who craft an
auto financing strategy beforehand are less stressed than those who wing it.
Here are five tips on buying your first car.
1. Prepare a Budget
You can count on the car dealer trying to convince you to finance something well beyond your budget.
They do this by emphasizing 'low monthly payments' - while minimizing the total sticker price.
Hence, it's crucial to have a clear budget in mind before leaving home. And more important than
having a spending plan is sticking to it!
2. Know Your Auto Financing Options
Consumers that don't do their homework get stressed out at the dealership. Don't let that be you. Check
your credit to determine your credit and vehicle financing options.
While you’re at it, don’t forget to familiarize yourself with some of the more common credit-related terms,
as well. If your beacon score is 680 or higher, you may want to consider getting pre-approved through a
bank or credit union. If it's mid 600s or below, the dealer's financing may be ideal.
Whatever the case, first-time buyers would do well to avoid auto leasing. Don't let the salesperson talk
you into a lease. While leasing offers lower monthly payments, mileage penalties plus wear and tear
charges can make leasing contracts more costly in the long run.
3. Choose a Short Vehicle Loan Term
Nowadays, car dealers offer several creative financing options. A great example is lowering your
monthly payments by extending the number of car loan payments. So, while in the past borrowers
typically financed their cars for five years, today many consumers are financing vehicles for up to
eight years!
Unlike real estate, most cars depreciate with time. So, if you get a seven-year loan term, you'll either
sell it for next to nothing or dispose of it before you're done paying for it. That’s why most consumer
finance experts recommend avoiding long car loan terms.
4. Buy Used and Negotiate
Buying a previously owned but well maintained used car can lower the overall cost of ownership by up
to 40%. On the other hand, the moment you drive that new vehicle off the lot, it loses 11% in value.
So why not let the depreciation work in your favor by buying a used vehicle? Most used vehicles
below five years are still in excellent condition and offer nearly the same amenities you'd find in a
brand new car. Plus, you can use even slight vehicle wear to negotiate deeper savings.
5. Find a Co-Signer
Banks like co-signers because they agree to pay the debt if you default on your loan. If you can find
someone willing to co-sign with you, your chances of finding affordable financing goes up
exponentially. Most co-signers have excellent credit and can help you get a low-interest car loan
approved with ease.
A Prepared First Time Car Buyer is a Happy Buyer
Knowing what to expect from the car buying process helps reduce the stress of buying a car.
Likewise, implementing the five tips we’ve just covered positions you to win even more. So, do yourself
a favor and put these car buying strategies to work now - you’ll thank yourself later.
