Like moving out and finding your career path, getting your first car loan is exciting. But it could seem like a daunting challenge if you don't know where to start — or fear that your application will get knocked back!
The truth is that younger applicants looking for their first car loan tend to have a lower income and an unestablished credit history. Other things like casual employment or a relatively short job history can also make getting a loan tricky.
The best way to land your first car loan is to build up a strong case for finance. How can you do this? Here are five tips.
1. Make a budget
This sounds like obvious, boring advice. But it’s always a good place to start.
Forming a plan to get approved for a first-time loan — whether that's a car loan or a home loan — will begin with what’s going in (and out) of your bank account. If you come to the end of each paycheck with only enough for a discount cheeseburger, then it’s time to get that budget into shape!
It goes without saying that the bigger the loan, the more penny-pinching you'll have to do. So review your bank account, identify your primary costs and set out realistic and achievable spending goals. Then take a step back: after all your major expenses, how much is left to spend on loan repayments? This leads us to the next tip.
2. Start saving
So you’ve made a budget. But let's say that your bank account is currently looking a little... bare.
Well, take those hypothetical loan repayments and start putting them away into a dedicated savings account. Make sure that you don’t touch this account; after a month or two, you'll have a good base for a deposit.
Why do you need a deposit? Well, to be fair, a deposit for a car loan isn't necessary. But if this is your first car loan, then you'll want to give yourself the best chance of getting loan approval. Having a deposit will do just that — and a smaller loan will reduce the amount of interest you'll end up paying. As a bonus, you’ll also get into a good habit when it comes to repayments.
3. Shop around
Have a car in mind? Great! Oh, you mean that $40,000 Jeep Wrangler?
Okay, let’s be serious — if this is your first car loan, you’ll probably want something economical. But don't despair: whatever your budget, there are plenty of practical, economical cars out there. And by that, we don't just mean a low price. 'Economical' also means paying less for insurance, maintenance and petrol. The cost of a car is more than just the loan!
But at the end of the day, the car you choose comes down to your budget. If you can afford a Jeep, then great! Just make sure that you do your research and find a good deal — or get some help finding that deal.
4. Research loans
Remember: don't get sucked into the first car loan deal you see.
Which is usually down at the dealership. Instead, take your budget and see how much you can afford each week. Then go to a car loan calculator and mess around. Adjust the car loan variables until you find what could be a reasonable car loan for you.
Another tip? Don’t apply for a car loan until you're pretty certain with your choice of lender. Applications for finance are recorded in your credit history. A recent history of multiple car loan applications with multiple lenders is a bad look — and it will make it more difficult to get a loan!
5. Find a guarantor
This could be a handy step if it’s available to you.
Having a guarantor could improve your chances of getting your first car loan. In most cases, a guarantor will be a close relative — a parent, for example — who is willing to add a layer of financial assurance on the loan in the event you default on repayments.
It should go without saying that a guarantor acts only as an emergency fall back. Having a guarantor listed on the loan should not make you complacent or relaxed about making repayments — it's your car loan, so it's your responsibility. Alternatively, you could see if your new car and loan could be shared with someone else.
Looking for more car loan information?
Then check out some of the recommended reading below, or contact a car loan expert today. The team at Rapid Finance will go through your situation to see if we could help you build your case. In other words, we do most of the hard work when it comes to finding and applying for a car loan. This service is especially helpful if you have a bad credit history, such as a previous default.
Call the team at Rapid Finance today 1300 467 274