First-Time Car-Buyer Guide: 8 Steps
Buying your first car doesn’t have to be intimidating. Preparation is key and can set you up for success when you head to the dealership. Among the things you’ll need to do is save for a down payment, create a budget and check your credit score. Here’s a first-time car-buyer guide to help get you through purchasing your first vehicle.
1. Budget what you can afford
A helpful guideline for buying your first car is the 20/4/10 rule. This rule recommends a 20% down payment, a repayment term of at most four years and less than 10% of your monthly budget spent on transportation costs.
A down payment on a car can demonstrate your financial responsibility to lenders as well as save you money on borrowing costs. While you put together a budget, you can use a car affordability calculator to help you determine what you’ll need to do to get your desired monthly payment. To see what kind of loan options you have, use an auto loan calculator.
2. Improve your credit score
Your credit score plays a large role in determining whether a lender is willing to approve you for a loan or if you’ll need a cosigner for your car loan. It’ll also impact the interest rates lenders may offer you — the better your credit score, the lower your rates.
You can check your credit score for free via the credit bureaus, your bank, LendingTree Spring or a variety of other ways. If your credit score isn’t up to par, you may need to take some time to improve your credit score. You can do this by checking your credit reports for errors, paying down any current debts or taking out a small-balance credit card that you can pay off every month.
3. Get preapproved
A car loan preapproval can give you an advantage as you shop around for lenders. Keep in mind that preapproved car loans are firm offers and, once you sign your loan agreement, the rates will be similar (if not the same) as your preapproved offer.
A preapproved offer can also help you compare various lenders and secure the lowest APR. Rate shopping for an auto loan is an important step when it comes to buying a car, so be sure to pick at least three lenders you can review
Ask about first-time car-buyer programs>
Some auto companies may offer first-time car buying programs. These programs offer incentives to those who are buying their first car, such as rebates or special financing. However, you will have to meet criteria around your income and credit history. Examples of companies that offer these types of programs include Ford, Enterprise, Kia and Honda.
4. Pick a dealership
Do your research and choose a local dealership or seller with a good reputation. Check customer reviews and try to avoid in-house car financing. Also known as “buy here, pay here” auto loans, these dealerships offer their own loans as opposed to third-party lenders. In-house financing tends to have much higher rates and stricter terms than other types of lenders.
As an alternative, you may save money by getting a credit union auto loan, which tends to have lower rates and more flexible terms. Beware of unnecessary dealer fees that can drive up your overall cost.
5. Choose a vehicle
Like with finding a dealer or seller, do your research when choosing a vehicle. Find a car that meets your needs, whether that’s an energy-efficient car or a heavy-duty truck. Sites that offer car expertise — like Edmunds and Kelley Blue Book (KBB) — can help you find safety ratings and performance levels.
To find the right car, some factors to consider include the following:
- Monthly car payments
- Insurance costs
- New or used
6. Take a test drive
Whether you’re buying a new or used car, it’s important to take that vehicle on a test drive. This’ll give you an idea of how the car performs and how you like driving it. It may also help you come up with more questions when buying a car that you might not otherwise think of.
If you’re inspecting a used car, be sure to run through a used car-buying checklist.
7. Get a car inspection
Before you officially agree to buy a car, take it to a mechanic and get what’s known as a prepurchase inspection. An independent used-car inspection can provide you a deeper look under the hood as to what potential repairs the vehicle may need, and help you avoid buying a lemon car.
Should the vehicle be inspected at the dealership, be sure to get a report in writing that you can pass on to your mechanic. If a dealership or seller pushes back against you getting an independent car inspection, you may want to consider doing business elsewhere.
8. Negotiate the price
Whether you’re buying a vehicle from a dealership or a private seller, it’s not uncommon to negotiate car prices. To help with this part of the process, check sites like KBB to determine the value of the car. This can give you insight into how much flexibility you may have during the price negotiation.
During the final stages of the loan application process, your lender will run a hard credit pull to check your credit background. Once you land on a price and receive approval, you’ll have to close on your loan by signing a contract. Be sure to thoroughly read through your contract before signing it, so you can fully understand the terms of your loan.