The time has finally come: you're ready to buy your first vehicle. Whether you’d like to kick a hand-me-down clunker to the curb, or you’re ready for a vehicle that better suits your current lifestyle, the following are five common questions first-time car buyers should consider before racing to an auto dealership.
1. CAN I AFFORD A NEW VEHICLE?
The best way to answer this question is by analyzing your budget. Review your expenses and determine what you can comfortably afford. In general, it is recommended you keep your car payment below 10% of your monthly take-home pay. Remember to create a plan with money left over for ongoing expenses such as gas, insurance, vehicle registration, etc. Considering these additional costs will allow you to enjoy your new vehicle without stressing over how you’re going to pay for it.
2. WHAT IS MY CREDIT SCORE?
Before applying for any loan, you should know and review your credit report. You can get your credit report, score, and history online from the three major credit reporting agencies (Equifax, Experian, and TransUnion). Visit annualcreditreport.com to get started. Knowing your credit score before you head to the dealership can help you understand your negotiating power when discussing loan terms.
If your credit is less than great, you can improve your score by paying off any outstanding balances and reducing your debt. This will put you in a better position to receive a lower interest rate when applying for a loan.
3. HOW DO I GET AN AUTO LOAN?
When it comes time to apply for a loan, you have options. You can finance your new vehicle with your credit union or a third-party lender offered by the dealership. With Sunward, you can get pre-approved for an auto loan – giving you the advantage of knowing how much you can afford before you head to the dealership. Showing the dealer your pre-approval letter also shows them you’re a serious buyer and can have a positive impact on price negotiations.
4. SHOULD I BUY A NEW OR USED VEHICLE?
A new car can provide peace of mind with a factory warranty and knowing you’re the first to own the vehicle. However, new cars are typically more expensive and depreciate quickly in the first few years of ownership.
Buying a used car can be a better option for first-time buyers on a budget. The previous owner covers the initial depreciation cost, which can leave you with potential savings of a few thousand dollars or more. Many times, you’ll find you can buy a used car with more bells and whistles for less than you’d spend on a new vehicle. However, make sure you have the vehicle inspected and review the vehicle’s history report.Overall, buying a new or used car ultimately depends on what you want and what you can afford.
5. HOW MUCH OF A DOWN PAYMENT WILL I NEED?
You do not always have to put money down if you have a great credit score and history to support it. However, making a down payment can lower your monthly payments.
Placing at least 20% down on a new vehicle and about 10% on a used one could reduce your chances of becoming “upside-down” (owing more on your car than it's actually worth) and also lower your interest charges. If you’re unable to put down 20%, you could pay to cover the tax, title, license, or any extra fees associated with your purchase.
Buying your first car may be the first major purchase you make. There's a lot to consider, but asking yourself these questions can help ease stress – and with some careful budgeting and planning, you'll be ready to hit the road without getting taken for a ride.
