If you’re a first-time car buyer, you might not know what to expect when talking to a lender for the first time. It can be intimidating, but there are a few things it helps to know ahead of time. Here are a few things you can expect from your lender if you’re a first-time car buyer—and how to prepare.
Expect a higher interest rate if you have no credit
You might think that if you don’t have much credit history, you might qualify for a better rate—because you don’t have any debt. This isn’t necessarily the case. People with little or no credit history are typically treated as higher credit risks, simply because there is no information about them one way or another about whether they are good credit risks.
Luckily, you can establish a credit history fairly easily. If you have the time, open a credit card and pay the balance off every month on a regular basis for six months at minimum. This should generally be enough to make it easier to get a car loan.
Expect to negotiate
You don’t necessarily have to take the first rate they offer you. You can always negotiate, especially if you’ve been offered a better rate somewhere else. But bear in mind that you’re likely to get farther being firm but polite than by being rude or aggressive. Keep the negotiations civil and pleasant, but stand firm. Try to state a lower interest rate and see if the lender will meet you in the middle.
Expect the conversation to focus on your monthly payment
Some lenders—especially dealerships—will try to keep the focus on what you can afford on a monthly basis, rather than on the total price of the car, loan, or interest rate. Not all will, but bear in mind that this is one way lenders will try to get you to pay more over the long run. The longer you let your auto loan stretch out, the more you’ll pay in interest. Keep the focus of the discussion on the total amount of the loan and the interest rate rather than the monthly payment.
Expect to be asked for a down payment
Not all first-time car buyers are asked for a down payment—especially if you already have established credit from other types of loans. But it’s not uncommon for first-time car buyers to be asked to pay a deposit of approximately 20% of the car’s purchase price. Be prepared to pay it if you want to get the loan, or get a better rate.
Expect be asked for a co-signer
If you didn’t have time to build your credit before shopping and you need the car now, you may not have enough credits for a car loan. If that’s the case, you may be told you need a co-signer—or you may get a much better rate if you have one. Be prepared before you go in, and have a conversation with a family member or friend you’d think about asking to see if they’d be open to the idea.
If you’ve never bought a car before, you may not have any trouble getting credit—or you might, depending on your individual situation and credit history. You are most likely to have trouble getting a car loan if you have little or no past credit history at all. Be prepared for the most likely scenarios—that you might be asked for a co-signer or deposit, or that you might not qualify for the best rates. Go in prepared to negotiate and aware of how much you want to pay throughout the term as well as on a monthly basis, and you’re more likely to get a good deal on a car loan—even if you’re a first time buyer.