Perhaps one of the biggest joys in life is shopping for your first vehicle. Once you’re earning a stable income and you are confident that you can meet the monthly payments, it’s time to get serious about choosing your first car. However, if you’re a first time buyer, chances are you have very limited knowledge, or that you may have insufficient credit or not credit history at all. Reading these tips can give you a short walk-through of the loan application process.
Study the jargon
Before getting into the complicated loan jungle, it is best to educate yourself first of the common terminologies that you would encounter, such as principal, interest rates, down payments, and others that surround the auto loan industry.
Take a look at your own credit
In every loan you’re applying for, your credit history will be the first thing lenders will look into. If it’s your first time to borrow, you’ll need to establish some credit first. Perhaps you can apply for gas and store cards that you regularly visit. Pay your monthly bills on time, and if possible, pay them in full. Also make sure to keep your balances below 50% of your available credit. In about six to twelve months, you will establish a decent credit history. Although this might not be long enough, it can still make the application process easier than not having any credit at all.
You sure wouldn’t want your world to collapse after choosing your dream car and finding out later that you do not qualify for it. To avoid this, it is smart to get preapproved. This way, you’ll get a quote, understand the costs, and either lower your expectations or find another way to borrow the amount that you need, without wasting time and effort. Don’t worry because you have no obligation to any lender and you can easily walk away if you do not like the terms.
Determine how much down payment you can make
Some lenders offer low or no down payment to attract borrowers. However, first time applicants shouldn’t be tricked by these offers, because they will typically have higher monthly payments and borrowers will end up paying much more in the long run. If you really want to save a good deal over time, try to gather as much money as you can for down payment in order to decrease the amount of money you need to borrow.
Check on the loan duration
While a reasonable car loan agreement typically runs between two to three years, there are some lenders that allow you to stretch your term for up to seven years or more. Though this may sound fascinating, with the lower monthly payments and all, this can cost you a lot in the long run. Furthermore, it could be dangerous to be tied to a loan for such a long time, as it would take a while before you can go back to your normal budgeting routine.