It’s a classic scenario: you want a car loan but don’t have any real credit history. Many first-time car buyers think they’ll either have to buy some old beat up car for cash or accept financing terms that anyone else would find outrageous. The truth is there are several things you can do today to get you behind the wheel of a solid car and still leave you with enough money to fill up the tank.
I can’t stress this enough-Get your credit report and credit score from all three credit bureaus (Experian, Equifax and TransUnion.) You need to know where you stand. Are you certain your student loan consolidation got reported correctly? Or how about that time you were late paying your credit card? Maybe you forgot, but the credit bureaus didn’t. The dealer will pull your credit reports, so make sure they are accurate and that you’ve taken care of any outstanding problems.
Take a realistic look at your finances. After all other expenses, how much can you really afford to put toward a car payment, insurance, gas and maintenance? You’ll be a more attractive buyer if you can provide a decent down payment and keep your car payment to a low percentage of your monthly income.
If you’ve got a couple cars already in mind, go online to get several auto insurance quotes. Many financing sites like ToyotaFinancial.com provide on-line tools to help you estimate payments.
Play with the numbers and remember a lower annual percentage rate (APR) with longer terms will give you lower monthly payments – the flipside is that you’ll pay more in interest over the life of the contract. To help save more money, consider taking a contract with a shorter term.
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Explore your options. You may qualify for programs that could bring down the purchase price of a vehicle or provide you with better financing options. For example:
College Grad: Did you just graduate or will you soon? At Scion.com not only do they offer $400, but they offer no money down, deferred first payment for 90 days and they throw in free roadside assistance for a year. And, of course, at Scion, there is no price negotiation – the price is the price, no haggling.
First Time Buyer: Some programs assist first time buyers in purchasing certain model vehicles. Interested in a Yaris, Matrix, Corolla or a Tacoma? Check out the iFinance program at Toyota.com. You’ll need 10 percent down, a steady job, car insurance, references and a minimum income, but you won’t need a co-signer.
Certified Used Vehicles: Another way to save? Go used. A “certified” used vehicle is one that meets standards set by the manufacturer and comes with a warranty. You can probably find advantageous “same as new” financing, too.
Leasing: Even though we’re talking about purchasing a vehicle, before you hit the lots, consider if a lease might be the right option for you. To learn more about the differences between leasing and buying, check out the article “Finance or Lease: Choosing One” on youngmoney.com.
Co-signer: Got a family member with good credit willing to risk getting stuck with the bill if you miss a payment? Should your account ever go to collections, guess who they can go after-your loving and trusting co-signer.
I’m not against the co-signer option; for many first-time car buyers, this is actually the fastest way to obtain vehicle financing and get a more reasonable rate. Just make sure you fully weigh all the benefits and potential consequences when going this route.
Add On’s: You won’t leave a dealership without being offered extended warranties and payment protection plans. Don’t discount the necessity of these options. But if your goal here is to make sure you can afford your car, research and understand what will be offered. Also, check out life and disability insurance to cover your car payments should you become disabled or, well, you know, dead.
Get your paperwork together. Here are a few things to bring car shopping:
1) Proof of employment or future employment-a W2 or pay stubs showing at least six months of employment, or an offer letter for employment stating your salary.
2) References – the names and contact info for up to six people.
3) Proof of enrollment in college and graduation date-or if you recently graduated, proof of graduation.
4) Copies of your credit reports.
5) If you have it, proof of collision insurance.
6) And any research you have done on the vehicles you like including invoice pricing data, incentives, rebates, Kelley Blue Book value (if you’re looking at a used car) and your insurance quotes.
OK, so you have your credit reports and credit score, you know how much you can afford, you’ve researched rebates and special offers, and you have all your paperwork together. Now you’re ready for that test-drive.
Justin Leach is a communications specialist for Toyota Financial Services. Prepare yourself for your next car buying experience by visiting toyotafinancial.com where you can view finance programs and offers tailored to meet your needs and learn more about understanding and protecting your credit, differences between buying and leasing, and various vehicle protection plans.