7 Tips for Buying Your First Car
Buying your first car may seem like an overwhelming process and is likely the largest purchase you have made to date. With careful planning, you can gain confidence in your purchasing decision and feel satisfied long after you’ve driven it off the dealership lot. Below are seven effective tips for buying your first car.
Know What You Can Afford Monthly
Almost everyone who purchases a car intends to make monthly payments through a traditional auto loan. First, determine what payment amount fits your budget. That starts with choosing the term of the loan, which generally ranges from 24 months to 72 months. If you opt for a shorter term, your monthly payment will be higher, but you’ll pay less in interest. A longer term can be attractive because your monthly payment will be less, but depending on your interest rate, you could end up paying more overall.
This is a critical tip because the more you prepare before heading to the dealership, the more focused you’ll be on what you really want to buy. Factors to consider include type of usage, size, vehicle space, cost, and more recently, gas versus electric powered. It’s a lot to consider, but fortunately there are many options to help you research these factors online, including rating/review sites such as consumerreports.org.
Learn About Financing and Purchasing Options
When buying your first car, it helps to familiarize yourself with the current range of interest rates, as well as whether you want to lease, lease to own, or buy with a traditional loan. As with your car research, there are plenty of options online where you can learn more about how to effectively finance your first car. A general rule of thumb is to consider making a larger down payment; the less you finance, the less interest you will pay. And if you’re planning to lease, keep in mind that there are often restrictions on the amount of mileage you accrue during the lease term.
Know What Might Affect Loan Approval
As mentioned previously, buying your first car is likely to be the biggest purchase of your life to this point and it is common to wonder if you will qualify for a loan. Before you start applying, check your credit score, payment history, and other factors that lenders typically use to evaluate whether to approve you for a loan. If you have a lower credit score or payment history issues, don’t worry. It is still possible to get approved for a loan, but it will likely be at a higher interest rate. You should also consider limiting your number of applications. Lenders will generally conduct a hard inquiry of your credit report and that may cause your credit score to decrease if you have too many inquiries in a short amount of time.
Get Preapproved Before Shopping
When applying for a loan, ask to be preapproved. That way, you can bring documentation of the amount when you visit the dealership. This not only protects you from purchasing a car out of your price range, but it also helps when negotiating the price. Keep in mind that when you are buying your first car, you are unlikely to get the lowest interest rate. However, you can make payments for a year and then refinance at a better rate in most cases.
Consider Buying Used
While it’s exciting to imagine yourself in a brand-new car, keep in mind that the car depreciates steadily in value as soon as you drive it off the lot. All cars depreciate, but a reliable or “certified” used vehicle with low mileage could be a more attractive option.
Be Prepared for the Dealership
Now that you’ve completed all your research and preparation, it’s time to head to the dealership. It may feel intimidating at first, but all your preparation and a preapproval letter will go a long way to helping you negotiate fairly. Keep in mind that regardless of what the window sticker shows, there is always room to negotiate. The most essential figure to know before you sign a purchase agreement is the out-the-door price. Remember that in addition to the price of the car, there are other costs such as sales tax, documentation fees, delivery and prep charges, registration, and extended warranties.
By following these tips, the process of buying your first car should go more smoothly and you can have more confidence that you’re making the right decision that best fits your financial situation. If you would like to apply for a loan with PlainsCapital Bank, please click here.