Qualifying for your first vehicle loan is an exciting milestone in life. Whether you’re in college and ready to upgrade to a newer vehicle or you’re treating yourself to a congratulatory present after landing your first full-time job, it’s important to understand the implications of applying for a loan. In addition to establishing a credit score or finding a co-signer, you’ll also need to think critically about what you truly need in a vehicle.
Establish a Credit Score
If you’ve never opened a credit card or signed a lease on an apartment, it’s likely that your credit score is non-existent. This poses a problem when it’s time to start shopping around for the best interest rate on an auto loan. If you’re six months to a year away from purchasing a vehicle, take this opportunity to start building your credit. Luckily, there are several options available when you’re ready to establish a credit history before applying for an auto loan.
Be Added to a Parent’s Credit Card
For young adults under the age of 21, being approved for a credit card might be difficult, especially if your income is low. If your parents have an excellent credit history, consider being added to one of their cards as an authorized user. This is often the easiest way to establish a credit history without needing to open a card on all on your own. After a few months of being an authorized user on your parents’ credit card, your credit score will likely go up and you’ll be ready to move on to the next step.
Find a Co-Signer
Good credit can take a while to build, so if you’re hoping to land a new ride immediately, a co-signer is likely your best bet to secure the loan. Keep in mind to only use your parent as a co-signer if their credit score is acceptable, since you might not be approved even with a co-signer if his or her credit score is sub-par. Car loans for first-time buyers can be hard to secure, but you’re more likely to qualify with a responsible co-signer on the loan.
When you’re shopping for your first vehicle, the most important thing to keep in mind is a realistic budget. While it’s incredibly tempting to opt for the car of your dreams, it’s almost always best to keep your expectations reasonable and purchase a car that you can afford without difficulties. In addition to having low monthly payments that you can easily make room for in your budget, you’ll have a better chance of landing your first auto loan if it’s something that’s safe and reasonably priced.
Consider Used Vehicles
As a young adult, you might be ready to leave your first car behind and opt for something brand new and stylish. However, it’s important to realize that new cars steeply drop in value the moment you drive one off the lot. To preserve your vehicle’s value and ensure that you’re able to afford the payments, consider purchasing a lightly used vehicle. Many people purchase a car that’s way out of their price range simply to turn around and sell the car with only a few thousand miles on it, so you’re very likely to find a gently used car that still looks and performs like new.
Take a Test Drive
You might have your heart set on a specific vehicle, but don’t jump to conclusions and purchase the first deal you find on this car or truck. Even if you find a great deal on your dream car, it’s vital to take the vehicle for a spin to make sure that you feel comfortable driving it. Each vehicle has a different feel and way of going, so it makes sense to give it a test drive before committing.
Only Accept Reasonable Terms
When you’ve found a car you like that’s in your price range, it’s understandable to want to seal the deal as quickly as possible. However, you should only go forward in the process if the terms of the sale are acceptable. A fantastic price on a vehicle is not the only aspect to consider when making a purchase this large, so be sure to proceed only if the interest rate and the number of payments are acceptable.