how to buy your first car

How To Buy Your First Car

Any first can be intimidating—a first job, first apartment, or first car. But knowing how to navigate financial firsts can save you a lot of hassle (and money). When it comes to buying your first car, an auto loan is a great option—especially with the competitive rates offered by a credit union. You can use that auto loan to purchase a new or used car—even a used car from a private seller on sites like Craigslist. As long as the car meets certain requirements—generally a car with less than 115,000 miles and no more than seven model years old—your credit union can loan you the cash regardless of the seller.

Getting pre-approved is an advantage

Car loans are pretty simple and straightforward for the most part. The lower the rate, the less interest you’ll pay over the life of the loan. A car loan is typically a 72-month term which you pay down in monthly intervals. This payment includes a portion that’s applied toward your principal balance, and a portion that’s applied toward the interest due on the loan. If you do decide to purchase a new car from a dealership, it’s a great idea to visit your credit union first for a pre-approval. Once you get approved for a particular term and rate, you can walk confidently onto the dealer’s lot knowing you have a great bargaining chip. It’s like having a second opinion before even taking a test drive. The dealer can either match the loan, or you can go with the initial loan offered by your credit union. It’s really a win-win for you!

Consider your loan options

There are, however, two ways to think about carrying a car loan. Some people need more liquidity, or said another way, more money available each month to cover their cost of living. For someone who needs more monthly liquidity, it might make sense to carry a loan for a longer term. This would mean paying more over the course of the loan, but you would pay less per month, freeing up some cash to cover your other expenses. Alternatively, you can more aggressively pay down your car loan with a shorter term. You’ll incur a higher monthly payment, but you’ll pay less money over the life of the loan. The bottom line is, there’s an auto loan to fit your needs. When choosing the terms of your auto loan (or any loan for that matter), it’s important to consider your own financial goals.

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It’s wise to be prepared

Before you walk onto a lot—or scroll through the listings on Craigslist—there are two final things to keep in mind:

  1. Financing increases the total cost of your car, and requires that you do the math beyond the sticker price. You want to understand not just the total sales prices of the car, but the amount you’re financing—including any finance charges, your annual percentage rate (APR), and the number and amount of payments due over the life of the loan.
  2. A prepared buyer is a wise buyer. Before you’re ready to make a decision, ensure you’ve done the proper research about the car, your needs, and your budget. You’ll want a general idea of make and model, your specific transportation needs, the total you’re willing to finance, and how much you can afford on a monthly payment. There are car payment calculators out there (like ours!) that help you see what your payment would be for different rates and terms so you know you’re making a decision you can afford—use one! When you keep these things at the front of your mind, you can enter into negotiations with confidence.

Refinancing your auto loan can save you money

You can also refinance an existing car loan. Let’s say you’ve already purchased your first car from a dealership, and you took advantage of a rate incentive—0% interest for the first year. Generally, those loans balloon after the first 12 months, and you’re more likely to pay somewhere around 12% APR once the rate incentive sunsets. If you refinance with your credit union after the first year, you’ll end up paying less interest over the life of the loan—and this could save you upwards of a few thousand dollars.

By contrasting loan options with an understanding of your needs and personal finances, you’ll be equipped to buy your first car and leave feeling good about it, too.

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