Car Loans for First-Time Buyers
Many finance companies have advertisements reaching out to people buying their first car offering programs to finance first time car buyers, but not all first time buyers have no credit. There are some that may have bad credit potentially making it harder to qualify without a down payment or co-signer. However, there are programs for all credit levels needing auto financing.
Program Terms For First Time Car Buyers
Your best asset when buying a car will be the knowledge you bring to the table when searching for financing and shopping for your vehicle. Below are a few terms that will be tossed around throughout the entire car buying process and you will surprise lenders and dealers when you are able to discuss them and have questions as well.
Credit Scores - First time buyers, you may not have an established score so there wouldn’t be any issues for you to fix prior to buying. However, if you have bad credit you will want to obtain a copy of your report so you can attempt to fix any issues before applying for an auto loan. Lenders have made it easier to obtain financing and bringing your score up just a bit could help get you approved for that first vehicle.
Interest Rates - Those buyers with no credit have programs available to them with lower rates than those who have credit issues. Both borrowers will see slightly higher rates than someone with established good credit; it is the cost for high risk and non-established buyers.
Income Requirements - Monthly income requirements will be established by the lender you apply with which will then be used to factor your debt to income ratio. Lenders use your DTI along with other requirements you will need to meet for first time car buyer loans to determine how much you will be able to borrow to purchase a car.
Loan Terms - As some lender have been handing out terms that last as long as seven or eight years, terms for first time car buyer programs will usually range from three to five years. The longer the loan term, the more you are paying in interest rates.
Pre-approval - The pre-approval, along with the application process we will add in with the step of shopping for financing. Do not take this step lightly you don’t want to get caught up with a lender that will make it impossible for you to make your payments damaging your credit. Find a lender that doesn’t charge for you to fill out an application, these lenders have better relationships with their borrowers.
Another option to consider as you plan on purchasing a new vehicle is whether you are going to buy new or used. This is just another item on the plate that adds to the stress of the car buying process. Here are a few points to think about as you contemplate your purchase.
- Custom orders – The option to choose the amenities and features you want.
- Warranties – Better manufacturer warranties offered.
- Amenities and Features – As technology and safety features advancing new cars offer the up-to-date feel.
- New car savings – New car incentives offer savings to buyers.
- Fuel economy – As gas prices rise, better fuel economy options are available.
- Clean History – There are no concerns whether the car was in an accident.
- Deprecation – Used cars have already taken their biggest hit, and may have more value after a few years.
- Warranties – With certified pre-owned cars manufacturers offer used car warranties.
- Lower Price Point – Buying cars like new for less.
- Insurance Rates – Lower rates on older vehicles saving you money.
- Buying options – Although you cannot build your car, there many models available with different packages.
If you have found this article looking to build credit, a high risk auto loan may be your best option as the vehicle could turn out to be an investment for you. However, another option to consider if you are not ready for an auto loan to build credit is applying for a credit card. A credit card could prove to be a great way to prepare you for the first time car buyer programs.
Key Points to Building Credit
- Only borrow what you can afford to not get in over your head, and if using credit cards only open one. More than one card may be difficult to maintain.
- Do not use more than 50% of your available credit when using credit cards and try to pay the balance in full each month.
- Making your payments on time or even early is the most important point to building credit, late payments reflect poorly.
- Credit history is was lenders look for, so the longer you are able to have a credit card the better. However, you will want to continue using it for small purchases.
Once you have paid on the loan or credit card for 12 to 18 months with no late payments, you may see that your credit has built high enough to qualify for first time car finance programs. Ensure that the credit card company reports your positive activity to the credit bureaus. There are credit card companies that may not report all of your payment history, only hurting your score showing open credit.
As you prepare to purchase your first vehicle we suggest making a budget plan to help you ensure that you will be able to afford the monthly payments. Many people have found themselves in over their head by buying outside of their means only damaging their credit.
Below is a high risk car loans calculator that will help you to estimate the amount that may be needed to finance a new or used car.