Financing your first car can be a daunting task and can feel utterly overwhelming to first-time car financers. However, it is a significant step towards independence.
You may be unsure of the process that needs to be taken if this is the correct route for you to take. If you should complete the financing at a branch or online, or if it is worth financing your first car at all.
You might need to familiarize yourself with many complicated terms, like fixed and linked interest rates and balloon payments. The whole situation may leave your head buzzing.
On paper, it may sound fascinating and even an adventurous decision to rid yourself of a clunking hand me down. Still, if you listen to the stories of those who got into financial debt due to car financing or even got scammed, you might just cool your engines before you head to the dealership.
Here are the top 4 things everyone should know about first-time car financing and getting the car you want at an amount you can afford:
- Draw Up a Budget Plan:
Your first step to purchasing your first car is to curate a perfect budget. This way, you will know the price range of the vehicles you can and cannot look for and ensure you do not set yourself up for a loan repayment you cannot afford.
When setting up a budget, it would be wise to combine your total monthly income and your combined fixed total monthly expenses. Your fixed monthly expenses will include things like rent, loan payments, and utilities. You will then need to have a look at your optional expenses, which will consist of things like new clothing, takeaways, haircuts, etc. Then conclude your monthly money expenditure by subtracting your expenses from your monthly income. (Monthly Income – Monthly expenses).
You will now be left with the amount of money you can use to finance your first car.
It is advised to keep your car payment below 10% of your monthly left-over pay. It would be best to consider things such as car maintenance and gas and combine these expenditures the car will bring into your fixed monthly expenses.
The other thing you will need to decide is your car payback time. For example, will you be making your car payments in a 24, 36, 48, or 74 month period – this will lessen the amount you pay towards your car each month, and depending on the amount of monthly repayment time you choose could increase or decrease your interest rate.
Also, consider if you will be making a down payment and how large the downpayment will be.
- Research Your Options
Your next step is doing research. Now that you have a set budget in mind and know what your down payment will be and your payback time period, you will be able to search for vehicles of a suitable price range for you.
An excellent place to start your research will be online – here, you will be able to view a variety of car dealerships and determine which of them have the type of vehicles you are looking for. There may even be a few that pique your interest. Make sure you look at dealerships with an excellent reputation to warrant you don’t land yourself in a scam.
You will have two different options, purchasing a new or used car. This is where personal preference comes into play. What you will need to decide is if you want to pay less for a used but better vehicle model or more for a new but less good vehicle model. (Make sure you check the vehicle’s status in detail to ensure there aren’t any issues with the vehicle gearbox or engine).
Once you have decided this and have narrowed down your online search, it would be good to visit the car dealerships in-person to see the vehicles for yourself before making a purchase.
- Explore Your Financing Options
Now that you have a budget and a car in mind, you can start to think of financing your first car. 84,6% of new vehicles and 54,6% of used vehicles were financed in 2019, according to Experian’s State of the Automotive Finance Market.
Financing your first car can be done through a third party like a bank or through an auto dealership. Consider speaking to both the auto dealership and the third party to find out which of them has the best monthly instalment plan and lowest interest rate.
Note that if you get pre-approved for a loan from a third party, you will get a good credit score, which is most definitely a bonus for you. Also, if a third party has approved your loan, they will give you the loan payment proof to show to the dealership.
Financing options can be confusing, so make sure you ask questions when you don’t understand something.
- Consider Saving for a Large Downpayment:
A downpayment is the amount of money you give the dealership upfront for the vehicle you are financing.
The larger the downpayment, the less your monthly loan will be, and your interest rate will also decrease.
Consider saving for at least a 10% downpayment, but a 20% downpayment will be even more beneficial. Of course, the more significant percentage you can put down, the better.
If you have a figure in mind that you can put up as a downpayment, you can search for an automotive website payments calculator. These will allow you to insert the amount of your downpayment and the time period in which you would like to pay back your car, as well as the price of the vehicle.
By putting in this information, they can determine a rough figure of how much your monthly car instalment will be and how the downpayment will positively affect your downpayment.
Conclusion:
All in all, how to finance your first car can come down to many different variables, and of course, life circumstances, and you should never allow yourself to fall into debt because of car finance.
Instead, ensure that you work out your budget correctly – this will guarantee you do not spend more than you have and that you can get a car that you want and can afford.
