Driving away in first car which is one of the precious purchases of life is such a trill, specifically if it is taken independently. Moreover, if you have just started with a new job or college it
would be a necessity like for most of Americans. While the only two options to get your dream car is either by paying cash or financing. Unfortunately, for the student or first time car buyer getting an automobile with cash is out of their reach and
with limited or no credit history, it really gets tough to secure vehicle finance. However, it can be easy to qualify for a car loan if they consider few things before applying which can increase their chances of being approved for a first auto loan. In addition, there cannot be the best way other than car loan to build or rebuild your credit history as the loan stay on your credit report for more than a year if paid
consistently. So, before getting the new car keys on your key chain, exploring few auto financing tips could save lot of money besides, getting you easily approved for automobile loan with lower rates. Below are few known but important questions
enlisted which a person with lack of credit needs to consider before applying for auto loan.
Should I apply for New or used Car?
Being a college fresher or first time car buyer, it becomes your prime concern to know which car would be best for you, when you are still
juggling with your dollars and building credit. Both new and used cars have pros and cons of their own. Generally, used cars cost less than new cars due to its already depreciated value at the time of purchase as compared to new car which depreciates
by 30 percent approx in its first year. Even if the price seems lower, the rate of interest for used car loan is usually higher due to decreased resale value, and risk of
loss to the lender in case of borrower’s default. While, the higher rates increases the chance of being upside down on car, where the cost of car is more than you owe on it. Moreover, you need to keep in mind the maintenance and repairing cost
if you are thinking to buy a used car since these cars are older it may cost you hand sum amount. A lot of dealers offer repairs and maintenance, if the car is under warranty for either new or used car. But if you’re buying a car from a private
party and not a dealership, you would be puzzled on status of your warranty and the auto parts also. Therefore, it would be advisable to take a mechanic with you while purchasing a used car.
While with a new car, the prices are usually high, but you can acquire low interest rates and longer terms with
warranties with no repair and maintenance cost on new car loan which ultimately reduces your monthly payments. Thus, reduces your chances of being upside down. So, it becomes
mandatory for first time car buyers who are unaware about of the auto industry to consider all this while opting for first car.
Do I need a co-signer?
The first time buyer will generally have nothing on
their credit report which can be said as a plus point rather than having negativity or bad credit history. However, due to their unproven credit worthiness for a lender it’s just like hitting a bull’s eye in darkness. And hence many
lenders hesitate to offer auto loan with zero credit history. The simple way to overcome this, would be finding a co-signer. A co-signer can be any individual who
has established credit and agrees to make payments if the original debtor defaults by co-signing the loan papers. In this way, the lenders risk is divided between the first time buyer and his co-signer. Thus, stronger the credit score of a co-debtor,
lower will the interest rates for the borrower and vice versa.
It is understood that
getting a co-signer is very hard, there are few lender who may offer you no co-signer car loan but then you would be paying higher rates that. But, typically for a first time car buyer having a no credit rating applying for an auto with co-signer
could be advantageous.
Do I have sufficient money down?
This question may seem of less importance to many people, but this has the major effect on car purchase. Putting up a sizeable amount of money down can reduce your monthly car loan payments, which ultimately
helps you staying within your budget. In addition to that minimum of 20% down can help save from being upside down on your car, where you owe more on car than its worth.
In this competitive market you may find lenders who will approve you for no money down car loans.
But then you could be overpaying. Hence if you are thinking to a buy a car, only buy the car where you can afford to pay 20% down otherwise don't.
Can getting pre-approved help me?
Pre approved auto loans -
Getting pre-approved for a first auto loan can be one of the excellent ways of securing auto finance. As you know what price range to look for, how much you want to borrow and what rates to accept. Thus you have the upper hand to the dealer and help
you get a better deal on your vehicle.
Once you are pre-qualified all you need to do is bring in the amount that you are
pre-approved for to dealerships and choose the car. It can be useful to qualify for lower rate car loan, especially for the first time buyers who have zero
credit and dealers take advantage of their ignorance.
What can be the best way to compare
quotes?
Comparing car loan rate is a
tedious task especially if you have less than desirable credit and you are a first time buyer and have to rome around for lender to lender negotiating the rate. And hence, many a time’s people accept whatever rates offered. But remember, a car
loan is a major financial decision, so make sure to compare quotes to get terms as per your requirement. The best source can be applying for online auto loan wherein, a lot of auto lenders offer quotes from more than one lender, which gives you an
opportunity to compare car loan quote anytime from the comfort of your home.
The list of questions do not limit to this. There are other factors such as your income, pay stubs, year of residence and year of employment which the lender look into while qualifying you for your first time buyer auto loan. Hence, the
first time buyers need to consider all these points before opting for a car loan and do the necessary home work before shopping for a car. A lot of online car financing companies offer car loan calculator, which can help you to calculate your
affordable monthly payments. |