Ok, so I know a lot of the younger guys and gals on here have probably gotten their first, second, third car from their parents while they're all in school or just getting out of and getting on their feet. This is a guide to help all of you to buying your first car!
Alrighty, I’m going to explain the process of getting a car and what you will all need.
Getting your loan!
Before anything here, I’m going to explain the difference between banks and credit unions.
All banks are FOR PROFIT. Which means they’ll do anything to get a dime out of you. Interest rates are going to be significantly higher on loans, and the loan approval rate is much lower. If you DO get approved, as stated, your interest rates are going to be high AND you probably will not be able to get a loan for the amount you want/need. They’re basing their decision on what the computer says. And that means no matter how well you know your banker, the choice is NOT up to them. Also, if you have little or no credit, you probably won’t be approved. If you apply and get approved for $10,000.00, that is the FINAL decision. So lets say you don’t have any money to put down on your new car, but the one you found is $10,500.00, they will NOT give you that extra $500.00 in order to get that car. You normally will not be able to choose your loan term ether. Final decision, banks are HORRIBLE for getting a loan.
Credit unions are amazing. I had banked at Wells Fargo for years, and I worked there for about 9 months before I went to a local credit union for my banking and employer. I stand by credit unions religiously now. The interest rates are significantly lower than any rate that you can get at a bank. In most cases, the highest rate a credit union will give, is about half of the lowest a bank can give. The approval rate is based off of what the financial advisor you’re working with, feels what you can afford, and what kind of person you seem to be. The loan application is still the same at a bank. But the ultimate approve/disapprove decision is in the person you’re working with, not a computer. I’d say about 95% of the time, as long as you don’t have any charge off’s or a high debt/income ratio, you will get approved. A debt/income ratio is basically how much you’re in debt and how much money you’re bringing in. (Ex: you’re $1200.00 in debt from a credit card. You bring in $900.00/mo. You’re debt/income ratio is 25%, which is really good.) A high debt/income ratio is considered above 50%. But just because you’re applying for a loan which would technically raise that ratio, doesn’t mean that it’s going to be played into part if you apply for some other credit while your car loan is still active. But that’s not going into effect here so we won’t talk about that. Another nice thing that credit unions will do is, lets say you initially applied for a $10,000.00 loan, but you found your DREAM car for about $11,000.00 after taxes, licenses and fees. You can work with that advisor and they will (almost guaranteed) adjust that loan amount so you can get that car, because they want you to be happy. Another nice thing about credit unions (or at least the one I bank with), is that there are “participation rewards” Basically a regular reward program, but in my instance, once I get my points up to a certain amount, I can use those points to lower my interest rate. But this is why credit unions are AWESOME for getting a loan.
Alright, loan time:
The pre-approval for a loan is the first and most sensitive part of the process when buying your first car. Talk to your parents or your spouse about your intentions and ask them if they would be willing to cosign on your loan. Cosigning can be a crucial part in if you’re going to be able to get your loan or not. Bring your parents or your spouse with you and go over the loan application. The purpose of a cosigner is that both of your credit scores and income will come into play when making a decision on how much your loan officer should give you. So it’s definitely nice to have a cosigner, but it’s not exactly necessary. One downfall to having a cosigner, is if you’re a very irresponsible individual and don’t make your payments, then that cosigner is going to take a hit on their credit score also. I got my loan without a cosigner because I didn’t want anyone else responsible for my car. And also because my payments are pretty low too. Keep in mind, you will not be signing any papers yet. But they will be pulling your credit report and reviewing your debt (if any) and all that. Here, they will ask you what sort of loan term you want. The typical terms are 36, 48, 60, 72 (3, 4, 5, 6 years). Keep in mind, the longer the loan term, the lower the payments will be. But also, the longer the term, the higher interest it will be (I think it’s about 0.5% increase each year you go up depending on who you’re getting the loan through). They will also ask if you want to put any sort of down payment on the car. That’s completely up to you, and there are some examples at the end of this post on interest rates, terms, and payments.
Things you should need to bring with you:
Last 2 paycheck stubs or a bank statement showing you and/or your cosigner have a source of income
Proof of insurance
Amount and/or statements of other bills you have
This will help in your behalf of getting approved. This is also going to give you a good estimate on how much you’re going to pay per month. Ask them about what kind of warranties and insurances that they offer for their loans. My credit union offers the same kind of warranty as the dealer offered. BUT the investment on the warranty that they offered, lets say… You get into an accident and it totals the car, the money that you spend on that warranty will be used towards the car. For example, you spend $800.00 on that warranty (which gets put into the payments on the loan) and you wreck your car. That $800.00 is put towards a down payment on your new car, or they will give you a check for that amount. Another thing that most financial institutions offer is a GAP insurance. It might be called something different at other places. It’s added onto your loan and I HIGHLY recommend it. But what does it do? Lets say you get into a car accident, your car is wrecked, and your insurance company only pays up to $6,000.00. But you still owe $8,000.00 on the car. That investment in the GAP insurance will pay the remaining $2,000.00 so you don’t have to keep up car payments on that car and the new one you decide to buy. Both of these combined would be phenomenal. For example, you spend a total of $1100.00 on top of your loan amount. $800.00 for the warranty and $300.00 for the GAP. Lets say $9,000.00 after taxes, licenses and fees, $10,100.00 in total. You wreck your car 1 year into it. Insurance company gives you $5000.00 but you still owe $8,000.00 on it. That GAP insurance pays the $3,000.00 you still owe, and the $800 from the warranty is put towards that new car you buy. ****ing awesome, right? I know! Another insurance that some/most places will offer you is a life, unemployment, and/or disability insurance. I would suggest these too for the fact that it’s literally about $1.00, yes ONE DOLLAR each month. It’s also added onto the loan but it covers literally what it says. If you lose your life, nobody is liable for that car. And that is a fantastic thing to get for the fact that if you are deceased and don’t have the insurance, collection companies will be calling your family and friends to try and collect the rest of the money you owe on that car. The disability and unemployment insurance covers your payments for 6 months until you get income coming in. These are all insurances I would suggest getting. It’s a dollar a month compared to the thousands of dollars it would cost you or someone else to handle the debt in case of any changes in your living situation.
With the growing of online capabilities and nearly every business having a website, the internet can be a great tool when searching for a car. Great websites to look at are;
CarSoup - Change Locations
New & Used Cars for Sale, Auto Dealers, Car Reviews and Car Finance Advice
Google is a great and probably your best asset to you when buying a car because it will pull up cars off of every website it can find instead of just within a website like Car soup. A lot of times you’ll get parts and random websites, but there are paid advertised websites at the top, which are surrounded by a yellow background. Look for those, or for some other kind of dealer website and you’re golden.
Find out your car’s value!
New Cars, Used Cars, Blue Book Values & Car Prices - Kelley Blue Book
N.A.D.A. Home Page
These are AMAZING tools that you can use for both buying and selling your car. I’ve personally used NADA when I was giving out car loans. It’s also a great tool when bargaining with a dealer on how much you’re going to spend. When a car is tagged for $8000.00, but the NADA or KBB guide says it’s only worth $7500.00, you’ve got some room to play with. My balt was worth $9200.00 on NADA, and the tag said they were selling it for $9,000.00. I talked them down to I think $7600.00 because I saw it for that price online for the same car at the same dealer. THIS IS WHY USING THE INTERNET IS ALSO AN AMAZING TOOL. A lot of cars online will show cheaper than on the sales floor, and you can use that against them to talk down the price.
I suggest using your resources (internet, newspaper, etc) before you actually go out to a dealer so you know exactly what you’re looking for when you get there. Make sure you look for a couple different dealers in your area with the car you’re thinking about getting, so that way you have some options and DON’T make a decision RIGHT AWAY. Go early if you can, and bring someone who’s bought cars before. It’s also helpful to bring a family or personal mechanic so they can look it over with you. Most of the time they have their cars and trucks categorized into their respected models and classes. When you find your car and park, 9 times out of 10, someone will walk up to you before you get 10 feet out of your car. Of course they’re there to help, but they will also be pushy (most of the time). This is why it’s nice to bring someone experienced that’s handled with salesperson before. Because they can sidetrack that salesperson while you’re going out and doing your own thing (this is exactly what my Dad did when I bought my balt). This way you’re not being pushed towards something you either don’t want or weren’t set out for right away. Go look for the car that you went there for, look it over, check the options and everything to make sure it matches. If you like what it looks like, go for a test drive! Be careful though, this is where most salespeople get pushy. One thing they pretty much guaranteed they will ask, is “how much were you approved for”. DO NOT TELL THEM. Because if you do, they will definitely push you to buy something more expensive or new because they make their money on commission only. And they make a larger paycheck if you buy a new car compared to a used one. I HATE pushy people when it comes to a big decision. If/when they ask, just simply say “Enough”. My car was the best buy for a cobalt anywhere near me. And I KNEW I wanted a cobalt. And my salesman tried pushing me towards a brand new Aveo instead of my balt…yea **** THAT. But just keep your cool, and tell them that you’re only interested in this kind of car. Remember, buying a car is a bargain game. Ask them to print off the CARFAX for you. Then make them sit on edge a little bit and tell them you’re going to another dealer to look at another potential buy. Get back into your car and go to another dealer, get some food, or something that will take an hour or so to review the carfax and think about your decision a little bit. Do this for every car you go and look at.
Once you make a decision on which car you want, tell them that you’ll be back once you have your check. But you’ll have to sit down with them to figure out the final price. This is called a “purchase agreement”. Basically this is a receipt for how much you will purchase your car for after taxes, licenses and sales fees. Another thing they will offer you here is a warranty. On my balt, it was about $400 to be GM certified, can’t remember. But it covers it up to 100,000 miles and powertrain warranty of 12,000 miles. After you’ve got that all said and done, go get your loan finalized. Some dealers require a “hold” payment to hold it for up to 3 days if you have to leave and come back. I put $100 down on my car to hold it over the weekend because my credit union is closed over the weekend and I had no way of getting my loan finalized. You’ll get that $100 back in a check form probably a week after you buy your car. This does NOT obligate you to buy that car though. But if you decide you’re not going to buy that car for some reason, they WILL give you that money back. Another thing they will ask is what sort of financing you got through your financial institution. Term and interest rate. They WILL try to offer you financing through them. First off, know the difference between financing and leasing. Leasing is where you put money down to make payments for 2 or 3 years while you have the car. There are stipulations to leasing. Most are basically that you can’t go over 12,000 miles in a year and you HAVE to get all your problems with the car done at the dealer. In that situation, the car is technically NOT yours. Financing is where you can put some or no money down to get your loan, and get a term to pay off the loan. The car IS yours in this situation. Many dealers will try and push you to finance the car through them. I would not suggest this for the fact that you, 9 times out of 10, wouldn’t be getting as good of an interest rate as you would through your financial institution. So it’s not worth the hit on your credit report for them to pull it and see what sort of financing they can do. So stick with your original finance options.