Driving away in your first car is such a trill, especially if it is taken independently. But to fulfill this dream you either have to make cash payment or opt for car financing. Unfortunately, for many students and first time car buyers choosing either of the options seems like a dreadful dream. On one hand, cash payments seems impossible and on another hand, securing vehicle financing with limited or no credit history really gets tough.
But if a person considers these questions before applying for an auto loan, it can increase the chances of being approved for a first car loan with lower rates besides, building the credit rating and saving money.
Should I purchase a New Car or Used Car?
Being a college fresher or first time car buyer, it becomes your prime concern to know which car either new or used would be best for you, when you are still juggling with your dollars and building credit. As both new and used cars have pros and cons of their own. Generally, used cars cost less than new cars due to its already depreciated value as compared to new car which depreciates by 30 percent approx in its first year. Even if the price for a used car seems low, the rate of interest for used car loan is usually higher due to decreased resale value, and risk of loss to the lender in case of borrower’s default. While, the higher interest rate increase the chances of being upside down on car, where the cost of car is more than you owe on it.
One more thing which you need to keep in mind is the maintenance and repairing cost. Since these cars are older it may cost you sizable amount. A lot of dealers often offer repairs and maintenance, if the car is under warranty. But if you’re buying a car from a private party and not a dealer, you would be puzzled on status of your warranty and also on the auto parts. Therefore, it’s advisable to take a mechanic with you while purchasing a used car.
Well talking about a new car, the prices are usually high. But usually the rate of interest for new car loan is low. Thus acquiring low rates on new car finance with warranties and no maintenance cost can ultimately reduces your monthly payments, besides reducing your chances of being upside down.
Do I need a co-signer?
The first time buyer will generally have nothing on their credit report which can be said as a plus point rather than having bad credit history. However, due to their unproven credit worthiness for a lender it’s just like having a bet. And hence many lenders hesitate to offer a car loan with zero credit history. The simple way to overcome this, would be finding a co-signer. A co-signer can be any individual who has established credit and agrees to make payments if the original debtor defaults by co-signing the loan papers. Thus it divides the risk of lenders between the borrower and his co-signer. There are few lenders who may offer you no co-signer car loan but then you would be paying higher rates.
Do I have sufficient money down?
This question may seem immaterial to many people, but it has major effect on car purchase. Putting up a sizable amount of money down i.e. minimum 20% can reduce your monthly payments significantly while saving you from being upside down on your car.
In this competitive market you may find lenders who will approve you for car loans with no money down. But then you could be overpaying. Hence, if you are thinking to buy a car, only buy the car where you can afford to pay 20% down otherwise don’t.
Can getting pre-approved help me?
Getting pre-approved for a first auto loan can be one of the excellent ways of securing auto finance. As you know what price range to look for, how much you want to borrow and what rates to accept. Thus you have the upper hand to the dealer and help you get a better deal on your vehicle.
Once you are pre qualified all you need to do is to bring in the amount that you are pre approved for to dealerships and choose the car. Thus getting pre approved can help you qualify for lower interest rate car loan, especially for the first time buyers who due to their ignorance and having zero credit history are ripped off by the dealers.
What can be the best way to compare quotes?
Comparing car loan rates is a tedious task especially if you have less than desirable credit and have to roam around from lender to lender for negotiating on rate. And hence, many a time’s people accept whatever rates they are offered. But remember, a car loan is a major financial decision, so make sure to compare quotes to get terms as per your requirement. The best can be applying for online auto loans wherein, you receive quotes from more than one lender, which gives you an opportunity to compare car loan quotes at your convenience and from the comfort of your home.
The list of questions do not limit to this. There are other factors such as your income, pay stubs, year of residence and year of employment which the lender looks into while qualifying you for your first car loan. Hence, the first time car buyers need to consider all these points before opting for a car loan.