If you’re purchasing a car for the first time, you may have noticed that there’s a lot of information available, and a lot of opinions to go with it. It’s hard to know what information is useful, unhelpful, or just plain outdated.
That’s why we’ve created this first-time car buying guide — to help you purchase a car with the latest, most up-to-date information. We’ll walk you through what you need to know, where you need to look, and what you need to bring.
First-time car buying guide key definitions
Before you get started, you’ll want to be able to speak and understand the car buying lingo. There are a few common terms you’ll hear a lot. We use these terms throughout this guide, so be sure to familiarize yourself with their meaning.
Financing: Financing is when, instead of paying for a car in full, you borrow money from a lender to purchase the vehicle. You then pay back this car loan over time, typically with interest.
APR (annual percentage rate): The APR is the total cost to borrow money, including the interest rate and any fees associated with the loan.
Interest rate: The interest rate, unlike APR, is the rate associated with the actual interest on the car loan.
Pre-approval: Pre-approval is a process whereby a lender essentially processes a preliminary loan application and gives you an indication of how much money you will likely be approved for, and at what rate, based on your current finances.
Term: The loan’s term refers to the length of time you will be making payments before the loan is paid off.
Planning for your first car
When planning for your first car, there are a few factors you should consider before you head to the dealership.
Deciding on a budget
Budgeting for a car can be challenging, especially if you’ve never had a car before. To help you get a ballpark idea of how much you can afford monthly, it’s a good idea to try keeping track of your spending and income for a few months. That way, you can understand how much money you have coming in and going out.
In general, 10–20% of your monthly income is a typical recommended amount that should go toward a car payment. To understand how the total cost of the car translates to your monthly payments, you can use an auto loan calculator.
Used vs. new
When considering what kind of car will be best for you, the used vs. new debate is likely to come up.
New cars have many years ahead of them, but their value depreciates quickly. Oftentimes, a few-year-old, well-taken-care-of, used car does the trick without the downfall of quick depreciation. However, used cars often come with a higher financing rate due to their increased likelihood of issues compared to a new car.
Before deciding on used vs. new, be sure to compare the pros and cons.
Shopping for a car loan
Another key factor that goes into budgeting is how much of a loan you can get approved for and at what rate. The APR rate that you can be approved for can drastically change both the amount you pay monthly and over the loan’s term.
It’s also a good idea to shop for a car loan before you head to the dealership. You don’t want to get swept up in expensive add-ons and luxury models before you know what you can afford. Shopping for a car loan beforehand can help you stick to your budget and not get ripped off by dealership financing.
Where to look for a car loan
When shopping for a car loan, it’s a good idea to shop around. This will allow you not only to secure a good deal but also to consider the various types of lenders.
For example, banks, online lenders, and credit unions often offer different rates and are better suited for different financial situations. Credit unions are not-for-profit and owned by their members, so they can oftentimes offer competitive rates that other types of lenders cannot.
Heading to the dealership pre-approved for a loan is a strong move!
Preapproval is the process where a lender looks at your finances and determines how much money you will be approved for and at what rate. They then issue you a pre-approval document that details this information.
Getting pre-approved means that you arrive at the dealership as a cash-in-hand buyer, which means you’ll be treated more seriously. In addition, when you know the best rate you can get somewhere else, you’re less likely to end up with a too-expensive loan directly from a dealer.
First-time buyer’s guide prepares you for next steps
Being a first-time buyer has its perks! One of which is that many financial institutions offer a first-time buyer’s program to help you get behind the wheel of your car.
These programs often offer resources for buyers with little or no credit history. They also often have perks such as discounts on vehicles and a simple application process.
Foothill Credit Union’s First Time Auto Buyer Program offers these perks — and more. Our program helps first-time buyers get up to 100% financing with a term that works for you. In addition, automatic payments can help you build your credit by making sure you never miss a payment.
If you’ve done your research and are ready to start shopping for and applying for car loans, look no further. Our competitive rates and first-time buyer perks can get you on the road ASAP.