Is this your first time to buy a car or take out an auto loan? Don’t worry; we got you covered! We’ll teach you some basics. Let’s look at three things as you get started with auto loans. Read on.
As you begin your journey of taking out your first auto loan, it’s important to look at your wallet first and see how much you can afford. But neither basing your budget on just the monthly payment you can afford nor focusing on the car price is the correct approach in determining your car budget.
The monthly auto loan payment and the car price are just two of the several expenses involved in owning a car. There are still the maintenance and repair costs, gas allowance, warranty, and insurance among others. You need to factor all these costs in when setting your budget.
According to finance advisers, the remaining amount from your monthly net income after all your personal expenses are deducted is the maximum amount you can put towards your car payments every month. They also keep reminding car buyers this rule of thumb: Transportation expenses should not account for more than 20 percent of your income.
After determining your budget—the one, by the way, you should commit to stick with until you buy a car—the next thing to do is to check up on your credit. Don’t head to a dealership right away to drive a couple of cars. No. Check your credit and arrange financing first before heading to dealerships.
Debt advisers say you should check up on your credit at least 6 months before you apply for an auto loan. Why? You need enough time to examine your credit report, dispute errors and improve your credit if necessary.
Get your credit report from all the three most trusted credit-reporting agencies in the country namely, Experian, TransUnion and Equifax. The government has now allowed consumers to access a free copy from each credit bureau through AnnualCreditReport.com. You are entitled to this every 12 months.
You should also purchase your credit score from FICO or Fair Isaac Corporation. The FICO credit scoring system ranges from 300 to 900. The higher your score, the more excellent your credit is.
New Car vs. Used Car
Now it’s time to decide what type of vehicle to buy: new or used. But actually, the question you should be answering here is: Which type of vehicle is right for you?
With a new car, you don’t have to worry about warranty, safety and comfort features, and pre-existing damages or wear and tear. The car hasn’t driven any mile yet and you can be sure that it is in its best condition. It’s just a matter of whether a new vehicle meets your needs. However, new cars are more expensive than used cars and they depreciate a lot in the first few years of ownership.
The prices and insurance costs of used cars are cheaper than new cars. Used cars do not depreciate that much since they have already shed value when they were with their first owners. Also, by opting for a pre-owned model, you can even experience luxury at an affordable rate.
But you may not have absolute peace of mind about the true condition of a used car. The vehicle history report does not tell you everything. Warranty does not automatically come with the vehicle. If you want warranty, you have to pay for it separately. You may also spend more on repair and maintenance as you drive the vehicle.
In any case, choose a vehicle based on your needs and not on your wants. And before you finally take your pick, read a lot of reviews and ask opinions from experts and enthusiasts about the vehicle you’re considering to buy.