Those applying for a first time car loan may have less of an understanding of the process than experienced borrowers. A first time borrower may not have good credit or they may have no credit history at all. Being knowledgeable about the financing process is critical for getting a good new or used car loan.
An auto loan is basically a secured loan and the car is the collateral. Student car loans can be direct or indirect in nature. With a direct loan, the lender gives the money directly to the buyer. However, most dealerships favor the indirect auto loan, where they are the middleman and the money gets handed right to them.
First time car shoppers should learn about interest rates, interest/principal ratios, fixed-rate versus variable rate loans and much more about the terminology that drives the auto financing industry.
Be prepared to place a down payment, which may be quite sizable — up to 20% of the selling price of the vehicle. Loan terms should be eased for those who are seeking first time auto loans but also have a credit history built through credit cards, student loans, retail credit, and the like.
Did you know that you don’t need to visit your local dealership to get either a new car loan or financing for a pre-owned vehicle? If not, it’s critical to look into your options for financing through banks, credit unions, captive finance companies and other types of lenders.
This is one of the biggest issues for a first time auto loan applicant. Don’t be dazzled by fancy loan offers that eliminate your need to pay money for a vehicle up front. Almost all no money down or low down payment auto loan offers simply backload your debt and causes you to pay much more over time. Scrape together what you can for a down payment, and your financing will become much easier and more affordable.
If the buyer plans to use a trade-in as part or all of his/her down payment, it will lower the amount paid monthly. For most people, a down payment or a trade-in of between $2,000 and $4,000 will be enough to get a loan with a decent interest rate. The amount you get for your trade will of course depend on the vehicle’s condition, so make sure your current car is in relatively good shape.
A loan’s amortization is the moment when it’s paid in full. Even with low rate car loans, the first few payments go toward the interest on the financed amount. After that amount is paid off, the payments are applied toward the principal.
First time auto loan applicants should absolutely look at the effects of long-term car loans. Traditionally, auto financing agreements were held to 2 to 3 years. Today, some lenders offer auto loans that stretch over seven, eight or nine years. These long-term loans can be dangerous for the borrower. Research your options for keeping your repayment terms shorter.
When considering first time auto loans, it may seem difficult to obtain financing without a cosigner. Getting a qualified cosigner or becoming the cosigner yourself may seem like the easiest solution. While this will ensure a quick credit approval, it also means they are responsible for the monthly payments if you default. It is recommended that you avoid using a cosigner unless your personal credit history requires it. Some lenders can trick a cosigner into becoming the owner of the vehicle without either the cosigner or the borrower being aware of it.
Many manufacturers have first-time buyer programs for which the normal credit requirements are loosened. While these programs are focused on new car buyers, traditional retail lenders who finance used cars also make decisions and may provide accommodations for first time buyers without cosigners.
Another new wrinkle for first time car buyers is in some tricky clauses that some lenders insert in today’s auto loans. Some of these bad terms prevent those with less than perfect credit from using a refinancing agreement to lower their interest payments after several months of paying on time. Other items prevent borrowers from paying off the loan early and skipping ahead of snowballing interest payments. For first time loan takers, reading the agreement thoroughly is especially necessary.
If you have any questions or concerns when it comes to a first time auto loan, it is best to contact a loan professional at a local bank or credit union or a finance professional at a car dealership that sells your preferred type of vehicle. These professionals will have access to a variety of lenders and lending programs, many of which will work for first time buyers.