Firsttime Buyer Advice on Financing a New Car

First-time buyer: Advice on financing a new car, Financing your first new car

Financing a new car can be a daunting task for many first-time buyers. It may often be the difference in buying our dream car or one that we simply can afford. There are some steps we take before we decide to go car shopping that will make our experience much more fun.

Our first consideration should be how much of a car payment we can afford. This answer may reveal our choice to buy a new car or stick with a used car, especially if we have our heart set on a specific make or model.

In a recent NADA (National Automobile Dealers Association) Press release, Used Car Guide Analyst Says Economic Fundamentals Point to Strong Used-Car Market Orland, Fla. (Feb. 14, 2010) –Slow new-car sales in 2008 and 2009 contributed to a shortage of used cars that lifted used-car prices. According to data provided to NADA through a partnership with the National Auto Auction Association, the average price of one- to five-year-old vehicles improved last year in every segment.

Jonathan Banks, senior director of editorial and data services for NADA Used Car Guide said, looking ahead, the economic fundamentals point to a strong used-car market in 2010. “Used-vehicle supply, even with the expected million-plus increase in trade-ins, will remain relatively low,” he said. “Economic fundamentals point to improved demand, and more constraint on new-car production should keep those transaction prices in check.”

This information points out that with the current issues with the new car manufacturers, the market for used cars will remain strong because of demand. Higher demand generally means higher prices. So, for the first-time buyer, a new car purchase may be the way to go.

New cars come with a warranty, many for five years or more and some even have extended service agreements, which mean that all of your routine maintenance is included. You are purchasing a new product which also means a lower interest rate on your loan.

Before visiting the dealership you should evaluate your financial situation and determine how much you can afford to pay. You may want to compare annual percentage rates (APR) and financing terms from multiple sources such as banks and your local credit union. Credit unions have emerged as one of the best alternatives to commercial banks in many offered services.

When you go shopping for an auto at the dealership remember to stay within the price range you can afford. You will spend the beginning of your visit selecting the car of your choice. The next, and possibly the most important segment of your visit, will be negotiating the finance arrangements. You can negotiate these terms just as you negotiate the price of the car.

Be sure you understand the value and cost of optional products such as extended service contracts, credit insurance, or guaranteed auto protection. If you don’t want these products, don’t sign for them. Read the contract carefully before you sign it. Ask questions about anything you don’t understand.

If you do not use your bank or credit union to finance your new car, the most common type of vehicle financing is "dealer financing" – where a buyer and a dealership enter into a contract. The buyer agrees to pay an amount, plus an agreed-upon finance charge, over a period of time. The dealership may retain the contract, but usually sells it to a bank, or credit union, which services the account and collects the payment.

After completing your auto purchase make sure you make your payments on time. Late or missed payments incur late fees and appear on your credit report, which can impact your ability to get credit in the future. You should also be aware that the bank, finance company or credit union that bought the finance contract from the dealership holds a lien on the auto title (and in some cases the actual title) until you have paid the contract in full. If you have difficulty making your monthly payments, talk to your creditors. Work out a repayment schedule and, if necessary, seek the services of a non-profit credit counseling agency.

Leasing a car has become an attractive alternative to purchase. Leasing is not for everyone, but it has some advantages over a purchase especially of you plan on keeping the car for just a few years. If you only drive a few miles each week to work or school and do not plan on putting on a large amount of miles, and plan to take good care of the car, a lease can offer a great value.

Most leases tend to have attractive terms in this current economic downturn. They often have no down payment with just sales taxes, a security deposit, and a “drive off” fee. The monthly payments are usually lower and they will take your “trade-in” just like a regular purchase. When your lease term expires, you simply pay a “drop-off” fee and you are ready to go out and choose your next new car. You avoid the hassle of selling your old car or haggling over the trade-in value.

If you do consider leasing a car, be sure to lease the car with the same terms that match the terms of the vehicle warranty or extended service agreement, usually three years. This will ensure that you will not incur any expensive repair bills or replacement costs during the entire term of your lease.

Happy hunting for your new car.