Buying a car is definitely a very unique experience. It’s not like going to the grocery store and picking up a candy bar. You don’t just see a price, swipe your card, and walk out with a new car. There is a lot of shopping around, talking with sales people, going on test drives, getting pre-approved for your car loan (which also means shopping around for the right car loan,) haggling for price, and so much more.
If it’s your first time buying a car, there are a lot of mistakes, pitfalls, and barriers you need to watch out for. To help make sure your experience buying a car is smooth, we’ve compiled some of the common problems that happen buying a car for the first time.
No Credit or Low Credit
Especially if you are just taking your first steps into adult life, you might not have any credit history, or you made a few mistakes and have a low credit score. This could lead to some serious problems with getting a loan, resulting in a high interest rate or getting denied a loan.
Before you even step foot into a car dealership, check your credit score. If you have no credit score, don’t worry! You have the opportunity to start fresh and build it up quickly. Get a credit card, use it a few times every month, then pay it off each month. Very quickly, you’ll build up your credit score to an acceptable range. If you have low credit and can wait on buying a car, focus on improving your score.
To help out, Pioneer offers a Credit Builder Loan to those with little or no credit as a means to establish a positive credit history while saving money.
If you try to buy a car with poor or no credit, you’ll run into larger problems, like high interest rates, needing to get a co-signer on the loan, and limiting your options on what kind of car you can afford with lower loan limits.
Know What You Can Afford, Not What You Get Approved For
When you get pre-approved for a loan, the lender takes a look at your credit score, your income, and existing debts to see how much you can afford per month for your car. What they don’t know though is other expenses you regularly have. A lender might think you can afford putting $350 a month towards your car when you can actually only afford $200 because of other expenses.
Consult your budget (or make one if you don't have a budget already) to see how much income you have each month that can go towards paying your car loan. It’s quite likely you’ll get approved for more than you can actually afford to pay each month. Be sure to have a plan on how and when you’ll make payments and what changes this will have on your regular spending habits.
Don’t Let the Car Salesperson Change Your Mind
Depending on where you go to buy a car, you might have to deal with a pushy car salesperson. What they think is best for you (and for their commission) might not be the same as what you actually want and need. Plus, many salespeople can be very persuasive when it comes to upselling a customer, so be wary.
While shopping for a car, you’ll experience a variety of different pressures and common sales tactics. Some will try to force you to make a decision then and there with a “one time deal.” Others will want to convince you to upgrade your car or purchase features you don’t actually want. There are even a few that will just lie about things in hopes to make a sale.
The best thing you can do to defend yourself is research. Know what kind of car you need for your lifestyle and how much you can afford. Do you need a simple four door sedan with decent gas mileage to get you to and from work? Don’t let yourself get upsold to a sports car with a sunroof and neon lights in the doors.
If you do feel like your getting a lot of pressure and become unsure what car to buy, don’t make a decision there. Head home, do more research and come back later. There is always another “one time deal” or special bargain they’re willing to make.
The New Versus Used Dilemma
New and used cars each have their own benefits. Each person has their own views on how to purchase their vehicles, and you need to decide what’s right for you.
The biggest difference between new and used cars is price. Used cars are cheaper than their newer and shinier counterparts. They also come with some wear and tear, extra mileage, and don’t have the latest and greatest in features. A new car is more expensive and loses a lot of value the moment you buy it, but also comes with the newest safety features and less flaws.
You need to make the decision which is better for your situation. Money is often the biggest factor, but take into other considerations like what you need to use the car for, how much you’ll use it, and what features are important to you.
Other Ways to Buy a Car
Dealerships aren’t the only places you can buy a car. People sell their cars online and on their own through Craigslist, Facebook, and tons of car selling sites. Buying a car outside of a dealer can lead to some really good deals and a way to avoid all of the extra “fees” dealers have.
At the same time, you need to be extra careful and do more research on the car. Before they sell a used car, dealers clean it, check for problems, fix it up, and make it as nice as possible. A random person selling you a car doesn’t need to do that.
Look up online if a car has ever been in an accident, and get a history of its repairs. Request that it gets checked out by a mechanic for potential problems before buying it. It’s worth spending a hundred dollars to avoid buying a car for several thousand dollars that’s going to break down after a week or has never had its oil changed.
Getting the Right Loan For You
The ideal way of buying a car is with cash, but most people aren’t able to do that. That’s why getting the right loan for you is incredibly important. Get the wrong loan and you might end up paying too much for your car, or have monthly payments too high to handle.
There are three major considerations when picking a loan: interest rate, loan term, and how much money you are borrowing. The goal is to keep the interest you have to pay on the loan as low as possible to save you money. With a low interest rate, short loan term, and keeping the amount of money you borrow as low as possible, you keep the overall cost of your vehicle low too.
The hard part is finding ways to keep each parts of the loan low. A shorter loan term means spending less on interest in the long run, but also means higher monthly payments. Lowering the money you borrow means putting down a larger down payment on the car and/or trading in a car for money to put towards your new car.
Shop around for your loan separate from shopping for a car. Find the right and best terms for your situation. Need a car right away, but don’t have money saved up for a down payment? You’ll need to find a loan that will cover all of the cost of the car. Need a very low monthly payment? You’ll want to get a loan with a longer loan term.
If it’s your first time buying a car, we’ve got a great option for you. Pioneer’s First-Time Auto Buyer Loan is a great option for members, especially those with poor or no credit, get their first car. Pioneer can provide 100% of the financing for the car, require no down payment, and we’ll work with you on the best means to improve your credit through the loan.
Visit our Auto Loan Page to Learn More!