For many of us, buying a car is our first major purchase. I remember purchasing my first car-a used 1992 Toyota Corolla-from a local used car dealership. I drove it for years and it ended up being well worth it. Not only for the sense of freedom that it provided me, but also for the piece of mind that it provided. While I could have purchased a vehicle for far less money, I likely would have had many more problems with repairs and breakdowns. Of course, buying a more expensive car necessitated getting a car loan.
However, for first time car buyers, determining how to get a car loan can often be a daunting prospect. For many buyers-particularly young buyers-figuring out the ins and outs of first time car loans is not a very enjoyable task. It involves a lot of research, comparing rates, meeting with loan officers, and checking up on credit history.
That said, there are a number of things that you can do to make the process of getting a car loan a lot easier. Here are some helpful tips for first time car buyers wondering how to get a car loan:
Get A Co-Signer – If you have a family member (perhaps your parents) who are willing to co-sign on a loan, you will often have a much easier time-particularly if you do not have credit history. Their assets, income, and credit history will factor into the loan terms, which can mean that you will have an easier time getting a loan (assuming that they have adequate income and good credit history). Essentially, they are signing and saying that they will be responsible for the payments in the event that you do not follow through with them. You can still make all of the payments and at the end of the loan period, you will have established credit.
Watch Your Credit And Repair It If It Is Poor – If you are looking to get a loan, whether it is a first time car loan or a mortgage, it is essential that you have good credit. If you have poor credit history, take steps to repair it. Settle old bills and pay off unpaid balances. There are many places you can go for advice on this. If you have no credit, sign-up for a credit card, use it, and pay off the balance at the end of each month.
Save Money For A Down Payment – Before considering a loan for a car, it helps to save up money for a down payment. This shows the bank that you are a serious first time car buyer and also reduces the amount that you need to borrow. At some banks a substantial down payment-20% or greater-may get you better loan terms.
Gather Documentation – To get a loan, you will likely need to verify your income. When you meet with the bank, bring two years of W-2 forms and your two most recent W-2s. In most cases, you will need to show steady employment for at least two years. Lenders also frequently want to know how long you have lived at your current address.
Check With Your Local Banks – While there are various websites and car dealerships that offer car loans, it is best to go to the bank and meet with loan officers in person. They will be able explain various options available to you and answer your questions. You can get pre-approved for a loan so that you know if you can purchase a car before heading out to the dealerships.
Research Interest Rates And Loan Terms – When taking out a loan, it helps to shop around. Meet with various loan officers to see what benefits their respective banks offer. One bank may offer a lower interest rate, have less fees, or even offer a package deal that includes insurance. It is especially important that you find a loan that has no pre-payment penalties. This is important because you want to be able to make extra payments if you are able to reduce the total amount of interest paid.
Buying a car for the first time can be a liberating experience, but with that comes a lot of work. It is essential that you consider how to get a car loan and take the process seriously. In the end, you will be much happier if you spend time to ensure that you are getting the best possible loan options.