Buying your first car is an exciting prospect. There is so much out there to choose from, and each vehicle has its own appeal. But before you get wrapped up in what you’re going to buy, it’s more important to address how you’re going to buy it. In other words, how are you going to pay for a car?
First-time Financing 101
The first question you’re going to need to ask yourself is how much can you afford. The only way to figure that out is to budget. If you don’t have a budget, now is the time to create one. Research shows very clearly that those who write and stick to a budget are far more successful financially than those who go with the fly-by-the-seat-of-your-pants methods.
What is a budget?
A budget is simply your income and your expenses. You write down the amount you bring in each month, and then subtract your expenses. Expenses should include things like rent, food, insurance, savings and of course, your car and its expenses. When you look at what you can afford for a car, make sure to factor in all of the monthly expenses—it’s not just a car payment. You also will need to budget for:
- Car insurance
- Gas
- Maintenance funds
- Repair funds
If you’re new to the budget thing, research how to write a budget, and use tools like the numerous free apps out there that help you stick to a budget.
Financing Basics
Once your budget is in place and you have a realistic look at what payment you can afford each month without going broke, you’ll want to start looking into how you’re going to finance your car. If you’ve already established some good credit, you’ll probably just need to know the basics. Some of the things you’ll want to have on hand are:
- Valid driver’s license
- Proof of residence
- Proof of income
- Credit/banking history
If your credit is less than stellar, you’ll have a couple options: Take a few months to improve it, or look at what you can do to look good enough in the eyes of a lender. You can improve your chances by having a steady monthly income and enough money to cover your payment, and by having a solid down payment. However, another situation that can come up is not having any credit at all.
What to do if you have no credit.
Having no credit can be just as challenging as having bad credit. People don’t want to take a risk on someone who hasn’t proven that they’ll be responsible. Some of the things you can do to improve your chances are:
- Put 20% or more down
- Shop around for dealerships with in-house financing who are willing to take the risk
- Get a cosigner
Cosigners.
If you have someone willing to back you up and vouch for your responsibility, ask them if they are willing to cosign your loan. The key is making sure they have good credit. You also need to show your cosigner how you are going to be responsible and how you are going to make payments. Another good thing to do is to show them what you’d do if something happened and you couldn’t make a payment.
Find cash for a down payment.
Any cash you can put toward your car purchase will go a long way to making you look good as a first-time buyer. Sometimes having a lot of cash on hand isn’t easy, but in today’s world, you have a lot of options for making some extra cash. Here are a few things you can do:
Sell your stuff. Have a yard sale or get on eBay or Craigslist. Anything you don’t use can be turned into cash, especially if its sought after. Think of things like old phones and electronics, designer clothing, sporting gear and furniture.
Get a second job. You can take on a second job temporarily and dedicate all the income to your down payment. Something seasonal is even better, as they only need you for a short period of time.
Get crafty. If you have a talent for crafts, like knitting or woodwork, make stuff and list it on sites like Etsy.
Do odd jobs. Yard work, babysitting or doing errands for people are all ways to make extra cash. Plus, look at all the online platforms that allow you to write or make money doing odd jobs. Places like Fiverr are popular spots for earning a second income.
Finding and Buying a Car
Now that your financial plan is in place, now comes the fun part. Buying a car. Make sure to research (don't buy solely based on looks), thoroughly inspect, test drive and negotiate. Before you know it, you’ll be out on the town in your new ride.
