Buying your first car is already a scary experience; in the midst of historic supply shortages, it is easy to feel overwhelmed.
In March this year, the average price of a used car was $ 27,246, according to Cox Automotive – a car market and computer company – a 28% increase from a year ago. With these price increases, the monthly payments have also swelled. Average used car payments reached $ 488 in the last quarter of 2021, according to Experian EXPGY,
In addition, the average loan period for used cars was just over 67 months or more than five years.
For many, cars are a necessity. If you have little or no credit, no co-signer or just a limited budget, it can be easy to accept a loan that stretches your budget or ties you to a car for six or even seven years.
Not being ready before pulling into a parking lot can open the door to a purchase you will later regret. Set your limits before stopping at a dealer; With the right preparation, you can prevent your purchase from becoming a burden.
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Get a loan
Your first step is to calculate the repayments you can afford and the total loan amount that is within your budget.
Try to keep your monthly loan payment below 10% of your net salary, and if you are buying a used car, keep your loan period below 36 months. If you are looking for a new vehicle, keep the maturity below 60 months. By limiting the term of your loan, you will save money on interest rates and reduce the risk of your loan being turned upside down – you owe more than the car is worth.
Speak in hand, start by looking for a lender who will give you a loan. Getting pre-approved for a loan before visiting the retailer can put you in a better bargaining position, prevent you from exceeding your budget and lower your interest rates.
With little or no credit history – especially since you’ve never had a car loan before – your best chance of being approved for a loan at the lowest possible interest rate is to apply with a co-signer. But if this is not an option for you, there are always financing options available:
One of the first places to look is banks and credit unions, especially institutions with which you have an established relationship.
Look in your area for lenders with first-time buyer programs that set conditions for how much you can borrow and which vehicles you can buy, but waive some of the credit requirements.
You can also look for loans from online lenders that offer bad credit car loans as they often want low or no minimum credit score. These loans can have an interest rate of over 25%, so a year after you take out one, you can try to refinance at lower interest rates.
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Choose the right car
It was easy to find a cheap car – or at least easier than it is today. If you have a budget of $ 10,000, your options are limited, but that does not mean there are no options.
With a limited budget, most choices will be older used cars, which increases the annual cost of maintaining your car. A 2021 Consumer Reports survey showed that 2016 model year vehicles cost $ 205 to maintain in the previous 12 months, while 2011 model year vehicles cost $ 430.
In addition to maintenance costs, there is also fuel, insurance, registration and taxes that increase the cost of owning a vehicle. When looking for a car, look at the cost of ownership as they differ from car to car.
The total cost of owning your vehicle, including repayments on your loan, should not exceed 20% of your home payment. While some costs can not be significantly reduced, you can minimize others, such as future maintenance, repairs and fuel, with the right car.
“The most important thing to look for is a car with a good service history,” car and driver editor Joey Capparella said in an email. “If the previous owner took good care of the car and can provide maintenance receipts, it outweighs other characteristics such as mileage or brand. Owner’s cars are desirable for the same reason.
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Maintenance and ownership history can sometimes be found through a service like Carfax. Use this information along with the car’s total mileage and age to narrow down your search. When looking at vehicles under $ 10,000, the car with fewer miles will often be the best choice if everything else is equal.
Once you’ve selected a car, give it a thorough test drive, Capparella added, paying attention to “seating position, window views and engine noise.”
If something in the car does not suit you, another vehicle is probably a better bet, and do not be afraid to be picky. You may not buy your dream car, but you can live with your choice – and pay for it – for many years to come.
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Colin Beresford writes for NerdWallet. Email: firstname.lastname@example.org.