Who would have thought that buying your first car would be so daunting? Most people devote plenty of time and money to purchasing their first vehicle. It’s probably because they want to make sure they are buying the right car that will stay by their side for a long time.
We believe that this process should be an exciting one because after all, this is a big financial decision and you shouldn’t come to regret it later. So, let’s start with a little research. The following steps will take you through the process of financing your first car:
Step #1 : Set Your Budget
When making such an expensive purchase, it’s important to set a budget. Many people start searching for a car without knowing how much they can afford. Whether you will be leasing your car or getting a loan for it, which we will talk about later, you need to find out how much you can give in monthly payments. This will allow you to sustain your daily expenses from personal to professional without jeopardizing your financial health.
Step #2 : Browse Vehicles
Now that you know how much you can afford to pay, it’s time to look at cars. Do not go above your set limit because this will destroy all the planning you did in step #1. If your dream is to own a luxurious car, consider things like gas and maintenance that run the overall cost of owning a car pretty high. This doesn’t mean that your search should include only small cars. Consider other factors such as your lifestyle and the car’s usage to determine whether a particular car will be worth buying or not.
Step #3 : Take a Look at Your Credit Score and Credit History
Your credit score and credit history are two important pieces of information that lenders rely on when giving bad credit car loans. Depending on what agency’s score range the lender is looking at, the numbers will give you the following rating.
|Credit Rating||FICO Score Range|
|Very Poor||300 – 580|
|Fair||580 – 669|
|Good||670 – 739|
|Very Good||740 – 799|
|Credit Rating||Vantage Score Range|
|Very Poor||300 – 499|
|Poor||500 – 600|
|Fair||601 – 660|
|Good||661 – 780|
|Excellent||781 – 850|
As you can see, there’s not much difference between the two models. However, a few numbers up and down can change your credit rating and lower the interest rate.
While your credit score is a big deciding factor for the lender, it is not the only one. Your credit history also plays a big role. For example, your credit history shows that you have made a few late payments. This tells the lender that you are not good at handling your finances. The higher your debts, the more skeptical the lender will be of approving your loan application. Though we have mentioned that you can get a bad credit loan, but this won’t get you favorable terms.
Step #4 : Lease vs. Purchase
When it comes to owning a car, you have two options: Leasing and purchasing.
Here’s how the two differ:
Leasing is a cheap option that allows you to get a car for a limited amount of time. Mostly, the price range falls under your budget, which is its biggest benefit. However, with leasing comes the limitation of the maximum mileage allowance. If you go above the set mileage limit, you will have to pay more than you owe. Purchasing is an expensive option, but with a car loan, you can choose a more durable car and own it in just a couple of months. One of the biggest benefits of purchasing a car using a loan is that it gives you the freedom to do whatever you want with it. You can even sell it later on and on your terms.
Step #5 : Understand Depreciating Value
Cars lose their value day after day. However, not all of them depreciate at such a fast rate. The rule of thumb is that the higher the car’s demand, the less it will devalue over time. According to a survey, new vehicles depreciate 19% a few months after they are bought, while some depreciate 40%. In the second year, the value experiences a 15% drop. This doesn’t make all cars a bad investment.
Since new cars don’t break down that easily and are fuel-efficient, you will still benefit from purchasing one than leasing it.
Step #6 : Save for the Down Payment
Unlike personal loans, bad credit car loans require you to make a down payment. This will allow you to lower the interest rate, as well as the monthly payments. Generally, it is recommended that you offer at least 10% of the loan amount in a down payment, but 20% will go a long way in convincing the lender to give you favorable terms. So, better start saving now because if you are planning to buy a car that costs more than $5,000, you will definitely need to show the lender that you can afford the loan.
Step #7 : Apply for a Car Loan
Bad credit car loans usually ask for collateral that can be either the car you are purchasing or a savings account so that if you fail to make the payment, the lender will transfer the fund from your account into theirs. Once your application has been approved, you will get the funds into your account in just a day.
Step #8 : Go for a Test Drive
Before purchasing the car, go for a test drive. Even though the car looked great in pictures, it might not feel that way while driving. Comfort is key to buying a car, so make sure that you feel that way the moment you sit in the driver’s seat.