Buying your first car is already an intimidating experience; In the midst of historical supply shortages, it’s easy to feel overwhelmed.
In March of this year, the average price for a used car was $27,246, according to Cox Automotive — an automotive marketplace and data company — or 28% more than a year ago. With the increase in those prices, the monthly payment has gone up as well. According to Experian, the average payment for used cars reached $488 in the last quarter of 2021. On top of that, the average loan tenure for used vehicles was just 67 months, or just over five years.
For many people, a car is a necessity. If you have little or no credit, no co-signers or only a limited budget, it may be easier to accept a loan that stretches your budget or even allows you to take a car for six, seven years. binds to.
Not being prepared before you walk into a car lot can open the door to a purchase that you will regret later. Set your limits before stopping at the dealership; With the right preparation, you can keep your purchases from becoming a burden.
a secured loan
Your first step is to calculate what loan payments you can make and the total loan amount that is within your budget.
Aim to keep your monthly loan payment below 10% of your take-home pay, and if you’re buying a used car, keep your loan term under 36 months. If you are looking for a new vehicle, keep the period less than 60 months. Limiting your loan term will save you money on interest and reduce the risk of your loan turning upside down — due to more than the cost of the car.
Number in hand, start looking for a lender who will give you a loan. Getting pre-approved for a loan before visiting the dealer lot can give you a better negotiating position, prevent you from going over budget and reduce what you pay in interest.
With little or no credit history — especially since you haven’t taken out a car loan before — your best shot at getting approved for a loan at the lowest possible interest rate is to apply with a co-signer. But if that’s not a possibility for you, there are still financing options available:
— One of the first places to look are banks and credit unions, especially institutions with which you have an established relationship.
– Search your area for lenders with first-time buyer programs that place certain conditions on the amount you can borrow and the vehicles you can buy, but waives some credit requirements.
— You can also look for loans from online lenders that offer bad-credit auto loans, as they will often have low or no minimum credit scores. These loans can have interest rates as high as 25%, so after a year, you can try to refinance for lower rates.
choose the right car
Finding a cheap car used to be easy – or at least easier than it is now. If you have a budget of $10,000, your options are limited, but that doesn’t mean there aren’t options.
With a limited budget, most options will be older, used cars, and this adds up to the annual maintenance cost of your car. A 2021 Consumer Reports study found that 2016 model year vehicles cost $205 to maintain over the past 12 months, while 2011 model year vehicles cost $430.
In addition to maintenance costs, there are also fuel, insurance, registration and taxes which all add up to the cost of owning a vehicle. When you search for a car, consider the cost of ownership, as this will vary from car to car.
The total cost of owning your vehicle, including your loan payments, should not exceed 20% of your take-home pay. While some costs cannot be reduced significantly, you can reduce others – such as future maintenance, repairs and fuel – with the right car.
“The most important thing is to have a car with a good maintenance history,” Joy Caparella, a senior editor at Car & Driver, said in an email. “If the previous owner has taken good care of the car and can provide service receipts, it leaves behind other characteristics such as the number of miles or the brand. This is why one owner’s cars are desirable.”
Service and ownership history can sometimes be found through a service like Carfax. Use this information, along with the total mileage and age of the car, to narrow down your search. When looking at vehicles under $10,000, a car with fewer miles will often be the better choice, if all else is equal.
Once you get on the car, take it for a comprehensive test drive, Caparella said, and pay attention to “the seating position, the visibility from the windows and the sound of the engine.”
If something about the car just isn’t right for you, a different vehicle is likely a better option, and don’t be afraid to make a choice. You might not be buying the car of your dreams, but you can stick with your choice—and pay on it—for years to come.