Today, a guest post from Crystal –
Buying your first car is a major milestone, but it’s also a significant purchase that can have long-lasting financial repercussions. You’ll want to choose a vehicle that suits your lifestyle and budget, both in the short and long term. For first-time buyers, navigating the ins and outs of car ownership can seem like a daunting process. Fortunately, there are numerous options are your disposal, particularly when it comes to financing. Keep the following tips in mind to stay firmly on budget.
Check your credit rating.
If you’re fresh out of school and have just started your first real job, you may not have much of a credit history to speak of. Check your credit rating to find out if there are areas with room for improvement, because this factor will have a major impact on your ability to obtain sensible financing.
When you’re comparing cars, you probably are already looking at sticker prices on sites like Carsales that fit within your budget. You also need to look not only at the bigger picture but at the monthly breakdown of car ownership, and stick to your guns when the time comes for negotiation. A good general rule is not to agree to monthly repayments that cost over 20% of your disposable income. This figure should include the car repayments, fuel, and insurance. Look at your finances carefully and choose a maximum figure that you’ll be able to afford.
Stay away from dealer financing.
There’s a definite appeal to obtaining your financing from the car dealership, as this allows you to walk out the same day with the keys to a new car. However, you’ll usually pay extra for this convenience, because financial institutions may offer you more advantageous rates. Before you visit the dealer, at the very least you should obtain quotes from other sources so that you know what your options are. This gives you more room for negotiation with the dealer, and can spare you the extra financing charges that dealers would charge.
Compare loan terms and interest rates carefully.
Whether you approach banks or auto dealers to obtain quotes, you’ll be faced with a variety of loan options. Two areas to look at are interest rates and loan terms. A common mistake for first-time buyers is to agree to a longer term in order to cut monthly repayments, but you’ll pay a lot more in the long term if you go this route. Ideally, your loan term should fall within the 3-5 year range. Similarly, interest rates could vary quite a bit between lenders so try to source several different options to get the best rates. The higher the deposit you’re able to pay, the lower your interest rates will be.
Read the fine print.
When you agree to a car financing plan, you’ll be offered additional services such as payment protection insurance or gap coverage. Be sure to read the loan terms and conditions carefully to avoid paying for these without your consent, however. Lenders may also slip in additional charges such as early repayment or administrative fees. Read the contract from beginning to end, and always ask if you see terms you don’t understand.
By taking the time to set a budget, search outside the dealership for a loan, and read all terms and conditions carefully, you can set yourself up for a better deal on your first car.