Tips for Securing Your First Auto Loan

July 6, 2022

The first time you buy a car can seem daunting and you may not know where to start. Don’t worry. Here are steps to guide the first time car buyer.

Determine your budget

Use an auto loan calculator to play with numbers. Be sure to leave money in your budget for gas and insurance costs. Plan to spend less than 10% of your take-home pay on your car payment and less than 15% to 20% on car expenses overall. Remember, you’ll be making car payments well after the excitement of buying a car wears off.

Decide whether to buy new, used, or lease

Once you determine your budget you’ll need to decide what type of car to buy. Oftentimes buying used is the best choice. New cars tend to lose more than 20% of their value within the first year. While leasing can be appealing it typically requires a high credit score and is more expensive in the long run.

Get pre-approved

Before you start shopping for a car, get pre-approved for a car loan. If you belong to a credit union, that should be your first stop. After that, consider your bank or online auto lenders. Compare auto loan rates and choose a couple of lenders to apply to. It doesn’t hurt your credit to apply to multiple lenders any more than it does to apply to one, as long as you submit your applications within a 14-day window. The US credit bureaus give this two-week window so consumers can rate shop for loans while only being counted as a single hard credit inquiry.

Try to get pre-approved with several lenders to find the lowest interest rate you can qualify for and make all applications within the two week window. Then ask the dealer to beat the lowest rate you received.

Pick a vehicle

This is the fun part. Browse online sites or visit dealerships and ask yourself questions about what you need and want in a vehicle:

• Cost – Will a car fit your budget better than a truck or SUV?
• New/Used – Should you buy a new car with a warranty or a used car that could cost more to maintain?
• Gas/Electric – Do you want an eco-friendly car with lower fuel costs? Can you pay more upfront for an electric car?
• Use – Will you travel long distances and need better gas mileage, or mainly stay close to home?
• Size – Will you be more comfortable driving a small car or large SUV? Do you have limited parking space?
• Space – Do you need to allow room for children, pets, or hauling items?

Negotiate

When you’re ready to take the plunge address the following things in order:

• Price, not payment, of the car you want
• Value of your trade-in if you have one
• APR of your car loan