First-Time Car Buyer Program: What Is It & How Does It Work?
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Summary:
A first-time car buyer program is meant to help those with little or no credit history obtain an auto loan on their first car. Sometimes car manufacturers or dealerships will offer these programs to recent college graduates or others who have a limited credit history. This is especially helpful to the buyer because traditional car financing can be challenging and these programs offer a path to building good credit.
Buying a new car can be exciting, but also a little daunting if you’ve never done it before and aren’t sure how the process works. Is it better to buy a brand new vehicle or a used car for your first vehicle? What will your monthly payment be? Can you even afford a car loan?
Today we’ll answer those questions and more as we walk you through how a first-time car buyer program works. We’ll also explore how the program facilitates the car-buying process, including auto loans, interest rates, and financing options.
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What is a first-time car buyer program?
A first-time car buyer program is designed to help individuals who have a limited credit history get car financing. This is usually because the buyer is young and inexperienced, not because they’ve been careless with their personal finances.
Though this isn’t the case for all first-time car buyer programs, some may have very specific requirements for first-time buyers. For example, you may need to be a recent college graduate or you might be limited to certain car models. With this in mind, you’ll want to look around and see what is available in your area.
IMPORTANT! Before you sign on the dotted line, be sure to ask the dealership about any additional fees that come with buying a vehicle. Some are unavoidable, like title and registration fees, but you may be able to avoid some hidden fees if you ask about them upfront.
How to find a first-time car buyer program
You can also check to see if certain car manufacturers have special programs for first-time buyers. If you have a specific vehicle in mind, you might try dealerships that carry that make and model to see what programs they offer.
Credit unions are another option that may offer financing options for first-time car buyers to help them establish a good credit history. It would be even better if you already bank with a credit union. Because you already have a history with them, they may be more lenient on car-buying requirements than some other lenders.
Car-buying requirements
Although credit and income requirements are not as strict as they are for traditional auto loan financing, you’ll still need to provide the basics.
- Government-issued ID to prove you’re old enough (usually at least 18)
- Social Security number
- Contact details (address, phone number, email)
- Employment and income information
Because you’re a first-time car buyer, you may also need to provide personal references, reveal your living expenses, and show proof of your recent or upcoming college graduation.
How does a first-time car buyer program help with car financing?
As you can probably imagine, a first-time car buyer program can make a huge difference for some potential buyers. But how much does it really impact the buying process?
- Credit history. As mentioned, first-time car-buyer programs are willing to accept buyers with a shorter credit history and lower-than-average score.
- Interest rate. First-time car buyers should expect to pay a higher interest rate than individuals with a longer, good credit history. Plus, if your score is particularly low, that will raise your interest rate as well.
- Down payment. As part of the deal, some first-time car buyer programs may not require you to make a down payment. However, keep in mind that the more you put down, the less you’ll pay in interest over the life of the loan. Plus you’ll have a lower monthly payment, which will be easier on your budget.
- Loan amount. First-time car buyer programs will often restrict the amount of money you can borrow for a new vehicle. This can keep you from biting off more than you can chew on your first-time purchase of an automobile, and also lessens the risk for the lender.
- Loan terms. Some lenders will give borrowers up to 84 months to pay off auto loans, but first-time buying programs may restrict the length of vehicle loans. Keep in mind that a longer loan term may lower your monthly payment, but you’ll ultimately pay more in interest.
- Employment. Many lenders require borrowers to have a year of steady employment to qualify for a vehicle loan, but first-time car buyer programs are a little more lenient. You will still have to provide proof of employment and income, but three months at a job should be enough to qualify.
Pro Tip
Some of these special programs may offer rate adjustments after a period of time. For example, if you make a year’s worth of on-time payments, you may be eligible for an interest-rate reduction.
What if you can’t get approved as a first-time buyer?
As explained, even though the credit requirements may not be as stringent for first-time car buyer programs, there’s no guarantee you’ll obtain loan approval. If that’s the case, you may need to seek alternative ways to buy your first car.
Get a cosigner
Perhaps one of the best options for first-time car buyers who can’t get approved for an auto loan is to get a trusted friend or family member to act as a cosigner on the loan. A cosigner acts as a guarantor. This means if you renege on your repayment commitments, they’re responsible for making the loan payments.
But if you’re responsible and make on-time payments, this won’t be an issue. As an added bonus, this type of scenario will help you raise your credit score, making you a more desirable candidate for new credit in the future. If you’re planning on applying for an auto loan with a cosigner, take a look at the lenders below to get a better idea of the loan terms you may qualify for.
Pro Tip
Even if you’re not using a cosigner, it doesn’t hurt to have a parent (or other experienced adult) with you when you’re negotiating. Having someone else’s expertise could help you get the best deal possible.
Save for a down payment
It’s possible your loan application was denied because you either don’t have a down payment at all or you don’t have enough. Being able to put down a decent amount of money on an auto loan (ideally 20% if possible) can help you get approved for a car loan. Not only that, but a large down payment will also help lower your monthly payments.
Maybe you need to wait a year until you’ve saved up for a bigger down payment and/or improved your credit history or increased your income.
Work on your credit history
Even as a first-time car buyer, you could have a decent credit history — it just might not be long enough to qualify for an auto loan just yet. Secured credit cards are a great way for prospective borrowers to build good credit or repair bad credit.
Because secured credit cards are literally secured with your own money, they’re relatively easy to get and go a long way towards boosting your credit score. They can also add variety to your credit mix, which can help your score increase further. Use the tool below to compare secured credit cards and find the best one for your spending habits.
IMPORTANT! Other ways to improve your score include making on-time payments on all your bills and paying down any existing debt you may have. You can also become an authorized user on someone else’s credit card which will raise your score too.
FAQs
Should a first-time car buyer purchase a new or used car?
That really depends on your needs and, more importantly, your budget. New cars have a warranty and (presumably) no mechanical problems, but they’re going to cost more. A used car, on the other hand, may have high mileage or issues that aren’t readily apparent.
As a first-time car buyer, your safest bet is to buy a trusted model that’s only a few years old, has relatively low mileage, and is certified by a car dealership. That’s your best way to get a good, safe car while still keeping your monthly payments lower.
Can I test drive the car before I buy it?
You probably can, and you definitely should. While some car dealerships may have additional requirements, typically you only need to have a valid driver’s license to test drive a car. The salesperson will likely come along for the ride but not necessarily, especially if you have a parent with you. Test-driving will give you a good feel for a car before you commit to buying it.
Key Takeaways
- Some lenders offer first-time car buyer programs designed to help those with little or no credit history get approved for auto loans.
- Such programs help to facilitate the car-buying process by having less stringent credit requirements than traditional auto loan options.
- First-time car buyer lenders may also have fewer down payment and employment requirements than other lenders.
- If your loan application isn’t accepted for first-time vehicle financing, you might want to take some time to work on your credit score or seek a cosigner for the loan.
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