Here’s how to get affordable financing for your first car.
Our guide will help you research your options and find a loan that works for you.
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What to do before you start applying for loans
Knowing what to expect in a loan application is the first step to finding a good deal. Lenders want borrowers who have their finances in order and a good credit history. Your debt-to-income ratio should be low, and you should be familiar with your credit score, including the types of rates you should expect within your credit range.
Loans aren’t often one-size-fits-all. You may need to apply to multiple lenders and could face rejection if you have a limited credit history. When you’re ready to apply for a loan, consider requesting quotes from multiple lenders using a broker. Many auto lenders can offer you preapproval that won’t count as an inquiry on your credit.
Compare these providers for your first car loan
3 common loan options for first-time car buyers
Depending on what kind of car you’re buying and your own personal financial situation, you may want to consider one of the following loans:
- A car loan. Car loans are offered by dealerships, banks and other lenders. Rates are competitive because your car is used as security for the loan. You can use these loans for both new and used vehicles.
- A secured personal loan. With a secured personal loan, you can use other assets besides a car as collateral. If you use your car as collateral, you may find that vehicle requirements are less strict. Rates tend to be as competitive as car loans since you still have the security to lower the lender’s risk.
- Unsecured personal loan. If you’d rather not supply collateral to secure your loan, consider an unsecured personal loan. Keep in mind that you’ll typically need good credit quality and rates may be higher than that of a secured personal loan.
5 tips for first-time car buyers
- Check your credit report. You have free access to your credit report once a year. Read over it and make sure nothing has been misreported. If it has, it may be negatively affecting your credit. Correct any mistakes before you apply for a loan.
- Apply for preapproval. Your credit won’t be impacted if you apply for car loan preapproval. This can determine how much you can afford before you start searching for your first car.
- Have a large down payment. By having cash or a car to trade in, you reduce the amount you need to borrow. This makes you less of a risk to lenders and shows you’re able to build up your finances responsibly.
- Add a cosigner. A parent or a more established adult may be willing to be a cosigner to your loan. If you prove to be trustworthy and able to meet your debt obligations, having a cosigner can significantly improve your chances of approval.
- Build your credit score. This option takes the longest, but can have an impact on your interest rate. Consider a store card or credit card to start building your score to prove to lenders that you have what it takes to pay off a loan.
What do I need to apply?
Once you’ve found a lender and loan product you’re happy with, click the Go to site button on the table above. Most lenders require that you be at least 18 years old and a permanent resident of the US.
Information that generally requested by lenders are:
- Personal details, including your name and proof of ID.
- Financial details, including your income, employment and outstanding debt
- Vehicle details, including make and model
Pitfalls to avoid when getting your first car loan
Before you apply for a loan for your first car, do your research and compare your loan options. This loan may be with you for a few years, and you’ll be glad that you spent time finding the right loan.
Don’t only look at interest rates, but consider the fees and charges you may incur over the life of the loan. Calculate your monthly payments and make sure they will be manageable on your budget.
Since you’re a first-time buyer and likely don’t have a thick credit file, don’t expect to receive the best interest rate on your first car loan. This means you’ll be paying more for a loan. But buying your first set of wheels sets you on the path to a positive credit history
Your first car loan may not be the cheapest financial move, but it’s one that can make a difference for years to come. The good news is this loan will build your credit, making future loans that much easier to qualify for.