Don’t let your first car be a $30K mistake

Buying your first car is already an intimidating experience; in the midst of historic supply shortages, it’s easy to feel overwhelmed.

For many, cars are a necessity. If you have little or no credit, no co-signer or just a limited budget, it can be easy to accept a loan that pushes your budget or binds you to a car for six, even seven years.

Not being ready before stepping onto a car lot can open the door to making a purchase you’ll later regret. Set your limits before you ever stop at a dealership; with the right preparation, you can keep your purchase from becoming a burden.

Secure a loan

Your first step is calculating what loan payments you can afford and the total loan amount that’s within your budget.

Aim to keep your monthly loan payment below 10% of your take-home pay, and if you’re buying a used car, keep your loan term under 36 months. If you’re looking for a new vehicle, keep the term under 60 months.

Getting preapproved for a loan before visiting dealer lots 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 have not had a car loan before – your best shot at being approved for a loan at the lowest interest rate possible is to apply with a co-signer. But if that’s not a possibility for you, there are still financing alternatives available:

● One of the first places to look are banks and credit unions, particularly institutions that you have an established relationship with.

● Search your area for lenders with first-time buyer programs, which put conditions on the amount you can borrow and the vehicles you can buy but dispense with some of the credit requirements. ● You can also look for loans from online lenders that offer bad-credit auto loans, since they will often have low or no minimum credit scores. These loans can carry interest rates of over 25%, so a year after taking one on, you can try to refinance for lower rates.

Pick the right car

Finding a cheap car used to be easy. If you have a $10,000 budget, your options are limited, but that doesn’t mean there aren’t options.

A 2021 Consumer Reports study found that 2016 model year vehicles cost $205 to maintain over the previous 12 months, while 2011 model year vehicles cost $430.

In addition to maintenance costs, there’s also fuel, insurance, registration and taxes that all add to the cost of owning a vehicle.

The total cost of owning your vehicle, including your loan payment, shouldn’t exceed 20% of your takehome pay.