The harder you work, the luckier you become.
Every first-time car buyer should keep these words close to his heart. Auto loan process is difficult for everyone. But, it becomes a harrowing experience for first-time buyers because of their ignorance and inexperience.
If you are in the auto financing market for the first time, do not worry. You need to take care of three important things because they will ensure a successful car buying process.
Days of barter are over; the era of cash is forever.
You cannot buy anything without cash. Even if you apply for a car loan, you will be required to make a down payment. So, it is important that you work-out your budget before buying a car.
You will need cash for the following things:
>> Down payment
>> Monthly payments
>> Registration fees and taxes
So, make sure that you are ready to assume the financial responsibility of a car before searching for one.
2. Credit score
After the days of report card, the days of credit report begin.
Just like colleges and universities check your SAT scores before approving your admission request; lenders check your credit score before approving your car loan application. Your credit score will determine your credit worthiness and help lenders in deciding the interest rate. Ninety percent of lenders opt for FICO score provided by any of the three credit bureaus: Equifax, TransUnion and Experian.
Every credit bureau gives different importance to credit score components. So, there are differences in each of your credit score. And, every lender has the right to use a credit score from any of the credit bureaus. So, it is important that you concentrate on your credit score range and not your exact credit score number.
If you have not obtained any type of credit before, you will not have any credit history. Following are the options for car buyers with zero credit score:
a. Obtain a no credit auto loan program for your first car.
b. Ask your parent to assume the responsibility of the loan.
c. Build your credit score by obtaining a secured credit card, department store card, etc.
Usually, a first-time car buyer has zero credit history. This creates a risky situation for lenders. They don’t know whether they can trust someone with no history of making regular payments. It is for this reason that lenders require someone with established credit history to co-sign you loan agreement.
Remember that a co-signer is different from a co-applicant. A co-signer has no right on the ownership of the car whereas as a co-applicant has equal right. You can ask your friends or parents to become a co-signer.
If you have trouble finding a co-signer, you can request the lender for approving your loan application without a co-signer. Although, no co-signer option should be considered as the last resort because it is expensive.
So, these are the three things that should be kept in mind before searching for your first car loan. Remember the words of Charles Buxton: “In life, as in chess, forethought wins.”