Millennium Money: Don’t Let Your First Car Be Your $30,000 Mistake


Buying your first car is indeed a scary experience; In the midst of historical supply shortages, it’s easy to feel overwhelmed.


In March of this year, the median price of a used car was $27,246, according to Cox Automotive — an auto market and data company — or 28% higher than it was a year earlier. With these price increases, the monthly payments have also inflated. Used car payments averaged $488 in the fourth quarter of 2021, according to Experian. Furthermore, the average loan term for used vehicles was just over 67 months, or more than five years.

For many, cars are essential. If you have little or no credit, don’t have a co-signing partner or have a limited budget, it may be easy to accept a loan that pays your budget or ties you to a car for six or even seven years.

Not being prepared before you get into the parking lot can open the door to making a purchase you’ll regret later. Set your limits before you stop at the agent; With the right setup, you can prevent your purchases from becoming a burden.

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Your first step is to calculate the loan payments you can afford and the total loan amount that is within your budget.

Keep your monthly loan payment under 10% of your household salary, and if you’re buying a used car, keep the loan term less than 36 months. If you are looking for a new car, keep the period under 60 months. Limiting the term of the loan will save you money on interest and reduce the risk of your loan becoming inverted – you owe more than the value of the car.

The numbers are in hand, start looking for the lender that will give you a loan. Getting pre-approved for a loan before visiting a lot of agents can give you a better negotiating position, keep you from going over budget and reduce what you pay in interest.

With little or no credit history — especially since you’ve never taken out a car loan before — your best bet to get approved for a loan at the lowest interest rate possible is to apply with one of the co-signers. But if that’s not possible for you, there are still financing alternatives available:

One of the first places to look are banks and credit unions, especially institutions with which you have a well-established relationship.

– Look in your area for lenders with first-time buyer programs, which put conditions on how much you can borrow and which vehicles you can buy but dispense with some of the credit requirements.

– You can also search for loans from online lenders who offer Auto loans for bad credit, since they often have low or no minimum credit scores. These loans can carry interest rates of more than 25%, so after a year of getting a loan, you can try to refinance at lower rates.

Choose the right car

Finding a cheap car was easy – or at least easier than it is now. If your budget is $10,000, your options are limited, but that doesn’t mean there are no options.

On a tight budget, most options will be old used cars, which increases the annual cost of maintaining your vehicle. A 2021 Consumer Reports study found that 2016-model cars cost $205 to maintain over the previous 12 months, while 2011-model cars cost $430.

In addition to maintenance costs, there are also fuel, insurance, registration, and taxes that all add to the cost of owning a vehicle. While searching for a car, look at the cost of ownership, as it will vary from car to car.

The total cost of owning your car, including paying off the loan, should not exceed 20% of the amount you are getting. Although some costs can’t be reduced dramatically, you can reduce others — such as maintenance, future repairs, and fuel — by using the right vehicle.

“The most important thing to look for is a car with a good maintenance history,” said Joey Caparella, senior editor at Car and Driver, in an email. “If the previous owner took good care of the car and can provide service receipts, this trumps other attributes like mileage or brand. Single owner cars are desirable for the same reason.”

Service and ownership history can sometimes be found through a service such as Carfax. Use this information, along with total mileage and vehicle age, to narrow your search. When looking at cars under $10,000, a car with a low mileage is often the best option, if all else being equal.

Once you’ve settled on a car, take a thorough test drive of it, Caparella added, paying attention to “the seating position, the view out of the windows, and the sound of the engine.”

If there is something about the car that does not suit you, a different car is probably the best option, and don’t be afraid to be picky. You may not buy the car of your dreams, but you can live with your choice — and make payments on it — for years to come.


This column was provided to the Associated Press by personal finance site NerdWallet. Colin Beresford is a writer for NerdWallet. Email: Twitter: Colin_beresford.

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How to get a car loan with bad credit

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