First-time car buyer programs: What they are and how to apply
Key takeaways
- First-time car buyer programs offer flexible qualification requirements and other incentives to make it easier for those with little or no credit history to finance their first car purchase.
- These programs typically have eligibility criteria such as being at least 18 years old, providing proof of employment and demonstrating the ability to repay the loan.
- To secure the best deal, it is important to research and understand the process before visiting a dealership.
As a first-time car buyer, the process of getting an auto loan may seem daunting, especially if you have little or no credit history. However, programs exist to help ease the path to car ownership. First-time car buyer programs, offered by lenders and automakers, are specifically designed to assist people in financing their first car.
What is a first-time car buyer program?
These programs are tailored for those with little or no credit history. They make finding financing easier if you are buying your first car. These financing options tend to have less stringent requirements than traditional auto loans. For example, many do not require you to have an established credit score at all.
Some programs also offer incentives like a lower interest rate after a certain period of on-time payments or vehicle rebates on the car’s purchase price.
Rates vary by program, but you will likely see higher rates than you would with an established credit history. Lenders use credit scores to see if you have a history of repaying loans on time. If you don’t have a credit score, they’re likely to see you as a higher risk for defaulting.
These programs may offer a limited range of loan terms. You may be offered a longer maximum repayment period if you have a credit score.
Where to find a first-time car buyer program
These programs are offered by lenders and can be found through online research or at dealerships.
- Lenders: Traditional lenders, like banks and credit unions, may have special offers for those purchasing their first vehicle. These programs might not be advertised prominently, so check with your own bank first.
- Automakers: Programs through dealerships and automakers may be easier to come by. Start by exploring dealerships in your area and the automaker’s website.
First-time car buyer program requirements
Qualification criteria tend to be less strict than with traditional auto loans. However, there are some basic requirements across most programs.
- Credit score: Unlike traditional auto loans, these programs are designed to assist people with limited or no credit history. But if you do have a healthy credit history, you may find a more competitive rate.
- Employment: Many programs request employment information to assure the lender you can afford the payments. Audi, for example, requests proof of income along with contact information for your employer.
- References: Some programs may request personal references for the dealership to reach out to. Audi requests two personal references, one from a relative, with a phone number and address.
How to get an auto loan as a first-time car buyer
Securing the best deal on an auto loan doesn’t have to be complicated. It starts with doing your research and preparing your finances to get approved for financing with favorable terms.
1. Research cars in advance
Start by researching what vehicle you’d like to purchase. Note any features you’d like to have along with those that are non-negotiable. Also, make a list of vehicles that catch your eye and that you’d be most interested in driving. And don’t forget to check the reliability ratings of the vehicles on your shortlist.
First-time buyers can also benefit from learning the auto financing process to be as informed as possible. It doesn’t have to be overwhelming, and knowing what to expect can give you peace of mind and help you navigate the process more seamlessly.
2. Create a budget
The biggest concern when buying a car should be the cost. Assess your spending plan to determine how much car you can afford without stretching your budget too thin. Experts recommend spending no more than 20 percent of your income — including the monthly payment and other ownership costs like maintenance, insurance and fuel — on a car.
Use an auto loan calculator to estimate monthly payments and total interest paid. Then, check resources like Edmunds and Kelley Blue Book to see what you can expect to pay for the vehicles you are interested in buying.
3. Save for a down payment
Once you know how much you can spend, start saving for a down payment that’s at least 20 percent of the vehicle’s total cost. A larger down payment improves your chances of a good interest rate, reduces your monthly payment and shrinks the interest you’ll pay over the loan’s course.
If you can’t afford this amount, aim for a down payment of at least 10 percent or whatever you can afford. Consider using Bankrate’s auto down payment calculator to find a figure that works for you.
4. Review your credit report and score
Your credit score is the most important factor lenders consider when determining your interest rate. To get a good deal, you will need a history of on-time payments and a solid credit score.
Again, if you haven’t had the chance to build your credit score and history, you could have luck with a first-time car buyer program. Also, remember that using in-house dealership financing to take advantage of these programs could mean a higher interest rate.
5. Shop mor than one lender
Comparing lenders is just as critical as comparing cars if you want a good deal. There are multiple types of lenders to choose from, including:
- Credit unions: If you have little or no credit history, you may be eligible for a first-time car buyer program with a local credit union auto loan. You’ll need to become a credit union member to apply for loans, so inquire about ways to join before moving forward.
- Big banks: Consumers with an existing relationship with a traditional bank may qualify for an auto loan. As a first-time buyer, you may face higher rates.
- Online lenders: Online lenders generally offer less strict eligibility requirements than traditional banks. This is good news if you lack credit history or a high score, but you can expect a higher interest rate to offset the risk of default posed to the lender.
- Loan marketplaces: These online platforms feature an extensive network of lenders. Submitting an application shares it with the network so you can view potential loan offers with lenders who could be a good match.
- Captive lenders: You can also secure financing through a captive lender, or the finance company belonging to the auto manufacturer. They often feature auto loan programs for currently enrolled students and recent college graduates.
Every lender has different rates and ways of calculating who gets what terms. Be sure to shop around and apply with multiple lenders. This allows you to see what you qualify for, how much you can spend and what you can expect to pay each month.
6. Apply for preapproval
Shopping around has an added benefit: It likely ends in a preapproved offer that lasts 30 to 60 days. Preapproval gives you time to shop around for a ride, knowing you’ve locked in funding at a fixed rate.
Preapprovals require a hard credit inquiry but give you leverage when it’s time to negotiate the purchase price at the dealership. You may also be able to negotiate a better deal on in-house financing — if that’s the route you want to go — with a preapproval letter in hand.
7. Add a cosigner or co-borrower
If you don’t have stellar credit, a cosigner or co-borrower could help your chances of getting a good deal. The lender will consider both credit scores when deciding whether to finance your vehicle. So, the individual you select should have good or excellent credit and a steady source of verifiable income that meets the lender’s minimum threshold for approval.
A cosigner doesn’t have rights to the vehicle but will become responsible for the loan if you cannot make timely payments. However, a co-borrower shares ownership of the vehicle and equal responsibility for the loan with you.
Navigating the car dealership as a first-time buyer
Buying your first car involves more than just choosing a car and securing a loan. It’s also about effectively navigating the car dealership and understanding potential risks.
- Ask about additional fees: It’s always a good idea to ask about fees that could make repaying your loan more expensive. For example, some lenders charge a prepayment penalty if you pay off your loan early.
- Ensure you meet credit requirements: Ensure that you have a strong enough credit history for the particular program and that you meet your repayment commitments.
- Seek advice: Speak to an older sibling, parent or someone else close to you with experience buying cars. You may wish to bring them to the dealership while you shop to provide advice and help you spot red flags.
And while it can be tempting to go for the shiny new model with all the latest features, remember that a more modest car can still be reliable and meet your needs. Lastly, don’t be afraid to negotiate the price of the car and always read the fine print before signing any contracts.
Bottom line
There are several enticing auto loan programs out there for first-time car buyers. By preparing your finances in advance, shopping around, getting preapproved and being patient throughout the process, you can boost your chances of getting the best deal on auto loan financing, even if it’s your first rodeo.
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