Tips for Financing Your First Car

1. Start Building Credit Well Ahead of Time

Buying a car starts long before you visit the dealership. You’ll want to make sure your credit is in tip-top shape when it comes time to put your money down. The better your credit, the better interest rate you’re likely to get for your loan.

If you don’t currently have any credit history, start building it by opening a credit card and making payments on time. You’ll also build credit by paying utility bills and rent on time.

If you have some work to do to improve your credit, you can analyze your credit history for discrepancies, lower your credit utilization to 30% or less, and pay off any outstanding debts if you can.

2. Create a Realistic Budget

Once your credit is in a good place, it’s time to start thinking about your monthly budget. First, figure out the amount of your monthly take-home pay—the amount of money you make after taxes. Then, calculate 10% to 25% of that figure, and that number should be the cap for how much you spend monthly on car payments.

The monthly budget you set for yourself isn’t just reserved for your loan payment, though. Be sure to build in other possible payments you’ll need to make related to your car, like fuel, insurance, and maintenance.

3. Save for a Down Payment

In addition to the monthly payments you’ll be making, you’ll also have to provide a down payment. How much you put down initially is largely up to you, but the more you put down, the better.

For used cars, it’s recommended that you put down at least 10% at signing. However, every dollar you use for your down payment will be exempt from the interest rate on your monthly payments.

Say you’re buying a used car priced at $20,000 and you make a 10% down payment of $2,000. The other $18,000 will accrue interest while you’re paying off the loan. If you put down 20% ($4,000), you’ll only accrue interest on $16,000 of your loan.

4. Explore Your Different Finance Options

There are a lot of different lenders out there, including banks, credit unions, and even dealerships themselves. Plus, the internet makes it easier than ever to explore and compare your many options in a fraction of the time.

First, find a used model you’re interested in and use Kelley Blue Book® to determine its value. Then, take your credentials and information about the model you like to several lenders to get quotes. Be sure to do all your applications within a day or two to reduce the number of hard inquiries on your credit.

5. Use the Calendar to Your Advantage

Supply and demand plays a big role in the automotive world with certain times of year being more popular for specific types of vehicles. Do you need an SUV with 4-wheel drive? You might want to start looking well before the chilly winter months arrive.

Location can also affect the types of vehicles available to you. For instance, you might have an easier time finding a wider selection of pickups if you live in a rural area as opposed to the big city.

The good news is that, thanks to our nationwide network of dealerships, you’re never limited by time or geography.