Buying your first car is a major milestone, but this exciting process can be marred with confusion if you don’t have any credit history. You may be offered loans with high interest rates by predatory lenders, or be presented with an overwhelming list of lenders who all seem to offer the same deal. To sift through these various options, you’ll need to get your finances together and learn a bit more about how to find the most advantageous financing.
Every provider offers different interest rates, terms, and conditions. It’s worth comparing these various offers to find a lender who offers the best rate when the time comes to buy a car. There are numerous comparisons sites online, such as myautoloan.com or moneysupermarket.com. These help you view lending options side by side, so you can make a more informed decision. You’ll want to look at factors like the length of the loan as well as interest rates, and calculate what your monthly repayments would look like over time.
View your Credit History
If you don’t have any credit, it may be best to establish credit before you look for car financing, which you can do easily with a department store or utility company. It will take about six months to establish good credit by paying off a small balance every month. You can use this time to compare cars and save up for a down payment, putting you in a much better position for financing down the road. Those who have bad credit or don’t have the time to wait to establish good credit can still potentially find financing, but will pay higher interest rates or require a co-signer for their loan.
Choosing an Affordable Car
For first time buyers, it’s a good idea to get pre-approved before you even start shopping. Otherwise, you may be tempted by the latest Ford ranger review by Motoring only to find out you can’t afford this model. Many lenders will pre-approve you for a loan without locking you into any contract. First time buyers may find used vehicles more affordable, and with a lower price tag on the car you stand a better chance of qualifying for a loan. However, if the car is too old you may find it difficult to finance, as most major lenders won’t finance cars with over 50,000 miles on them. For these older used vehicles, you may need to take out a cash loan or find a used car lot that offers in-house financing.
Applying for a Loan
After comparing all of your options and shopping around for the perfect car, you’ll be ready to complete the process and apply for your loan. Take care to look at the fine print before you sign any paperwork. Many lenders will advertise a low rate on their website, but your specific quote might be different. You’ll need your credit and banking history as well as proof of insurance and residency. Some first-time buyers will need a co-signer for their auto loan if they are unable to meet the financial requirements. Most first-time buyers will qualify for a secured loan, which requires at least a 20% down payment. This serves as equity in the event that you default on the loan.
Although securing financing for a car can be slightly more complicated for a first-time buyer, taking the time to research all options carefully and compare quotes can help you find an affordable fit.