Tips for First-Time Car Buyers

Buying a new vehicle is exciting, whether it’s brand-new or just new to you. For first-time buyers, part of the thrill is in choosing a car that suits your specific style and budget. Before thinking about what model you want, it’s smart to figure out how much you can afford. Here are some tips to keep in mind:

Financing options

An auto loan is an option to pay for your first car if you have a reliable income. The more you’re able pay upfront as a down payment, the less you’ll need to borrow. Financial institutions like Camino Federal Credit Union can finance a portion of the cost up to as much as 100 percent of the value. Don’t forget to factor in any taxes and tag, title or registration fees in the purchase cost, as well as any shipping costs. Later, routine maintenance should also figure into what you’ll be spending for your new ride each month.

Choosing the right lender

Auto loans typically carry lower interest rates than personal loans because they’re secured by the vehicle. There’s a potential downside to that, though: If you fail to make the payments, the lender can take back the vehicle. New car loans usually come at a lower interest rate than those for pre-owned autos. Terms can be as long as 72 months.

Take care to determine all the costs and any hidden terms or fees involved, especially when arranging financing through a dealer. Often, for instance, the dealer may be getting a finder’s fee, which is charged to the car buyer. When it comes to alternatives, credit unions generally provide better rates to borrowers than banks. In the second quarter of 2014, the average five-year new car loan from a credit union carried an interest rate that was almost half that of the average bank financing, figures from the National Credit Union Administration show.

It’s a good idea to get pre-approved for financing so there won’t be any unhappy surprises once you find the car of your dreams. Also, knowing that you have the financing squared away can help when it comes to bargaining over the price.

Budget for insurance

Save room in your budget for auto insurance. Coverage you need is typically based on state requirements. The cost of your premiums will depend on many factors, including the age, make and model of the vehicle; the number of drivers who will be using the vehicle; and those drivers’ age and driving record. The normal daily driving or commuting distance also plays a significant role in insurance rates. If you’re stepping up to a new car from an old clunker, find out how much your insurance costs will rise before you buy.

Protecting your investment

Regular auto insurance isn’t always enough, though, especially when it’s your first vehicle. Some lenders offer optional extra protection for borrowers. For example, Guaranteed Asset Protection insurance, or GAP coverage, can ensure that you’ll have money to pay off the loan balance even if your car is totaled or stolen.

Choosing a vehicle

When narrowing your search for the right used auto, consider the model year, how many miles are on the car, its fuel economy and its general condition. If you’re not familiar with cars, ask someone you trust who knows about them to check out vehicles with you.

When buying your first car, it’s easy to get excited about finding the perfect fit for your lifestyle. Take the time to find the financing and insurance that fit your budget, too.

MJ Knoblock, NerdWallet