Finance Your First Car and Get Behind the Wheel

Your first car purchase is, in all likelihood, the first long term financial commitment you will make. Even those with experience making such important decisions can hit a snag when it comes to the financing process. As you prepare to finance your first car purchase, learn how to handle the financing and loan steps in the best way for your specific situation.

Check and Understand Your Credit Report

The first step in successfully financing your first car purchase is checking your credit report and understanding what the rating and details are saying to lenders. Loan qualification is highly dependent on your credit rating and ability to make payments based on your income level. A low credit rating will limit your loan options to those with higher interest rates geared toward low and no credit customers. You are entitled to an annual free credit report that will provide your current rating and a rundown of any debts or other issues that are negatively impacting your score. Check for inaccuracies and ways you can start improving the score. Once you understand your credit report, you can narrow the field of loan options to those most likely to be approved.

Down Payment Planning

Plan ahead for the first, and every, down payment you will need to make toward the purchase of a car. The auto down payment you make reduces the principal amount of the loan you will need, which means either the payments or the length of the loan term can be reduced. Ideally, your down payment will be at least 20% of the cost of the car.

Cash Payments for Fees

While you are saving up for your first car down payment, consider adding extra to that savings plan so you have cash on hand to cover any fees, taxes or upgrade expenses. The reason for paying these additional charges upfront in cash is the same as paying as much as you reasonably can on the down payment, to reduce the amount of money you need to finance with a car loan. Additionally, when fees, taxes, and other expenses are wrapped up in the financing, your loan immediately becomes more than the value of the car you are purchasing and the loan is considered “under water.”

Shorter Loan Term

A long car loan term might be attractive to a first time car buyer, as the monthly payments are smaller compared to shorter terms. However, opting for a shorter term and higher monthly payments will reduce the amount of money you inevitable spend on interest. Keep in mind that as you pay interest, the final cost of your car can rise well above the market value of the asset.

Your first car purchase and financing experience do not need to be stressful or confusing. Pay attention to your credit and the amount of interest you will be accruing throughout the life of your car loan, and be prepared to shop around for the financing terms that best fit your needs.

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