Car financing tips for first-timers


If you're a young professional dealing with the cost of living in most parts of the U.S., chances are the option of buying a new car outright simply won't be there for you. Kelley Blue Book estimated the average new car cost in America at just over $36,000 as of January 2018. For plenty of people in entry-level jobs just getting into their careers, that's equivalent to or slightly less than a year's salary. By many Americans' standards, that's too much to drop all at once.

This is why so many opt for financing or leasing to manage paying for the automobiles they need. But there are right and wrong ways to go about acquiring a car loan. Let's go over what you need to know to help find the financing that won't unnecessarily stretch your budget each month:


Check your credit

Your credit report and score play major parts in the auto financing search. According to Money Under 30, while car loan applicants with average or below-average credit will probably be approved, they'll also see high interest rates of 10 percent or more. Because the value of cars, unlike houses, doesn't increase with time - even if you maintain them well - high interest means you will likely owe more than the car is worth almost right away.

In summation, you should carefully review your credit report and score before seeking auto financing. On the former, check for any errors that might be dragging down the latter, and dispute them if necessary to beef up your score.


Review total loan cost

Interest, as expressed through annual percentage rate, is arguably the most significant aspect of total automobile cost. Consumer Reports advised first-time auto customers to closely examine the term length and APR of a loan more than the car's initial price.

If financially possible, go for a three-year loan instead of five years or more: Monthly payments are higher, but total interest will be much greater on a lengthier loan, and interest rates are often heftier as well.


Read all fine print

Keep an eye out for low- or no-interest promotions. Edmunds pointed out these incentives are typically offered to people who would qualify for low interest anyway based on their credit, so the vehicle seller can entice a larger down payment from you (and thus earn a higher commission). If your FICO score is 700 or greater, take the minimal interest rate you've already earned rather than opting for the promise of zero.

Also, if offered zero interest with fair to middling credit, watch out: The promotional rate is likely temporary, to be replaced by a high figure after anywhere from six to 12 months.


Consider pre-owned instead of new (or used)

According to Bankrate, the last few years have seen a considerable number of leased cars returned in good condition and marketed as certified pre-owned rather than used. If you find a car on the lot designated as such, this may be your best bet: CPO vehicles will cost less to finance than new, and typically must meet quality standards to earn their classification. There may even be time left on the original manufacturer warranty, entitling you to certain repairs if necessary.