Looking For A First Time Car Buyer Loan? Times Have Changed And You Can Get Pre-Approved!
Getting a first time car buyer loan has never been easier. But there are a lot of pitfalls that you need to be aware of.
I sold cars in Phoenix, AZ and I often gave this illustration to people looking for a first time car buyer loan:
Imagine your new neighbor comes over one day and knocks on your door. You answer it and he blurts out, “Can I borrow $25,000? I know you’ve got it and I really need it to buy a car. You can trust me to pay you back!”
In an over-simplified way that’s what YOU are to a car lender if you’ve never made a major purchase on credit before and are asking for a large sum of money that you have no way of proving (because you have no lending history) you will pay it back.
FACT: Being a first time car buyer is nearly as bad as having bad credit.
10 years ago getting a first time car buyer loan was virtually impossible without a co-signer. But times have changed and so has the car industry. The marketplace is so competitive now that lenders are really stepping up to help first time car buyers. And one of the best ways to do this is through pre-approval.
Pre-approval puts YOU in the drivers seat! With that check in hand you can walk onto the car lot with confidence, spend time looking at several vehicles and choosing the one that you really want!
There Are Two Types Of First Time Car Buyer Loan Misconceptions
The first one I mentioned above. Wanting too much car! I worked at a Chevy dealership and in Arizona everybody wants a truck! So I routinely got 18 to 20 year olds who wanted trucks that cost $20,000 or more.
Then there is the other type who thinks the banks will only lend them a small amount so they came on the lot looking for a $4,000 cheapie.
In the first scenario the person is not budgeting for their future. Lenders know that although you might not be paying rent, utilities, etc. today, you probably will during the life of the loan so they won’t let you go overboard with a high payment. Trust me! They don’t want that car back in a repossession when you can no longer afford the payments!
In the second scenario the person is being overly budget conscious. What they don’t understand is that the lenders want to make sure you are in a good vehicle that will probably only require general maintenance. They know that you are more likely to make your payments on time if the car is running great and you don’t have a huge mechanic bill to budget for!
This is why getting pre-approved for a first time car buyer loan is so great! You will know EXACTLY how much you can afford and get the best vehicle in that price range!
So What Will Lenders Give You? That Depends On A Several Things
Do you have a co-signer with a strong credit history?
• When it comes to first time car buyer loans lenders like co-signers because they know that the other person will always come through if you can’t, their credit history proves that.
• PLUS since a first time car buyer typically has a zero credit score the interest rate is determined by how strong the co-signers credit is. This could mean as much as a 10% lower interest rate for you.
Do you have any money down?
• With the market being so competitive today a lot of lenders will approve you for no money down. But a good rule of thumb to remember is that every $1,000 down translates into roughly $20 to $25 a month in payment. AND if you put no money down you will be paying interest on sales tax and your license plate!
What is your monthly income?
• Lenders will usually only allow a certain percentage of your income towards a car payment. So the more you earn the more you can borrow (typically).
A Pre-Approved first time car buyer loan is the BEST way to purchase a vehicle
Being pre-approved for a first time car buyer loan means you know exactly how much vehicle you can afford, and what the banks rules are about the vehicle (typically less than 5 years old and under 50,000 miles). So you are free to look for the vehicle that YOU want. This makes the shopping experience fun and exciting, which is exactly what it should be!
As a car salesperson I like getting people who are pre-approved. Because together we can walk through the lot looking at vehicles we know they can afford, going over options, features, etc. and picking the one they like best!
Before You Charge Off To Get Pre-Approved Here’s Some Helpful Advice
If you don’t have a co-signer then pick one or two lenders and apply to them ONLY. Don’t hit 10 or 12 at once thinking you can “shop the rate.” You are a first time car buyer! First time car buyer loan interest rates are all close to the same amount. And 1/4 of a percent isn’t going to make or break a payment.
Once you’re approved USE THAT LENDER. Don’t let the dealership talk you into “checking your credit for a better interest rate.” Again, you are a first time buyer! Most lenders will charge close to the same interest rate. So once you’re pre-approved look for vehicles that fit within the amount the lender is giving you.
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Budget For A Warranty And GAP Insurance
Warranties protect you from those high mechanic bills. Cars today have so many computer chips in them that it can cost a lot for repairs. Heck even something as minor as a broken window motor can cost over $400!
In the case of a total loss accident GAP will pay the difference between what the insurance company gives you and what you owe so that at least you walk away from an accident with a zero balance.
If the lender approves you for $15,000 remember that you will need at least $2,000 to $3,000 of that for GAP and warranty and shop accordingly.
So, you're ready to get pre-approved so you know how much vehicle you can afford! Click Here To Get Started!
Good luck and good shopping! I hope that you find the vehicle of your dreams!
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Know Your Credit Score BEFORE You Go Shopping For A Vehicle!