Next to housing, people put a lot of their money into their cars. In 2011, Americans were spending an average of more than $8,200 on transportation. With the undying need for cars and rising car prices, a first-time car buyer would have to decide carefully on the most cost-efficient way to purchase a car. Fortunately, there are more than a couple of options to choose from.
First Car on a Debt
For first-time car buyers, the auto loan process usually seems daunting. Actually, they just need to keep three important things in mind to make it easy.
The first one is about building credit. If this is your first time to buy a car, you probably do not have a credit yet. In this case, you may find it hard to get approved for an auto loan since there isn’t enough proof for lenders to verify your creditworthiness. Nevertheless, you can build credit through a credit card. This may take time and delay the purchase but keep in mind that you need a good credit to get a good car loan deal.
The second thing you need to remember is saving up for the down payment. Traditionally, the required down payment is 20 percent. However, experts today suggest paying more than 20 percent. This does two significant things for car buyers: One, it increases the chances of a car buyer to get approved for a loan since paying bigger down payment appears impressive to lenders. Two, car buyers can enjoy a reduced monthly payment, shorter loan term, early payoff and more savings.
The third and last thing is shopping around. You cannot just settle with the first loan offer you encounter. Auto loan rates vary from lender to lender. There are also a lot of rip-off artists around. Shopping around would protect you from such entities and lead you to the best deal.
If you do not like taking out loans, you can buy a car with cash. However, you need to spend time saving enough cash for this. The biggest advantage of getting a car with a one-time upfront payment is there are no interests you have to shoulder.
The credit card is another option. However, using your credit card to buy a car comes with a fee which dealers have to pay to the credit card company. If you are considering this option, make sure to negotiate and finalize the purchase price first before disclosing your preferred payment method.
Experts have different opinions on which option a first-time car buyer should choose. However, your decision depends on how you weigh the pros and cons of these options.