The Beginner’s Guide to Buying Your First Car

1. Get pre-approved by a credit union or your primary financial institution.

This step should, believe it or not, come before any of your research does. This approval will determine the vehicles you need to look for and research rather than finding a vehicle first then deciding how you'll afford it.

Getting approved at the dealership allows the dealer to show you vehicles that cost the maximum amount you can spend. Just because you’ve been approved does not mean you should or can actually afford that much. The car dealer is not a financial officer. They can only offer so much advice, usually pertaining more towards if the seat warmers and sun roof is worth it, not if you can or cannot realistically afford it.

Some things to think about when getting pre-approved: How high is your credit score? The better your score, the lower your interest rate will be. Your credit score gives the lender an idea of how quickly you can pay back your creditor.

There is no excuse for not getting preapproved. Technology has made preapproval, in most cases, nearly instant. You can apply online, by phone, or at your local credit union and can be preapprove in minutes.

2. But what if I don’t have credit? And what’s the deal with co-signers?

Have no fear! Having good credit, like noted above, will reflect the amount of your interest rate. Good credit, or even any credit, will usually determine that you do not need a co-signer and actually, many financial institutions would prefer not to have a co-signer if they feel that you are in good enough standing not to have one.
No credit, no cosigner, no big deal.
It isn’t impossible to get a loan without credit history or a cosigner. While it does take more paperwork, it’s not impossible. Paperwork such as paystubs, a current job, proof of available funds to make the purchase, and a down payment can be the dealer breaker between needing a cosigner or not. If your lender is confident that you can make monthly payments on your own, they may not require a cosigner.

3. Research different loans and loan terms.

Missouri Central Credit Union has terms from 2-7 years, depending on the age of the vehicle. Longer terms may mean smaller payments, but in the end, a 2-year term will cost significantly less than a 7-year term when interest is added in.

With the help of your lender, you will have to decide what type of loan will best fit your financial situation.

4. How much of your income should go towards a car payment?

Many financial experts suggest following the 20/4/10 rule:

  • Make a down payment of at least 20%.
  • Finance a car for no more than 4 years.
  • Don’t let your total monthly vehicle expense, including principal interest and insurance, exceed 10% of your gross income (salary before deductions).

5. The extras.

If anyone knows about hidden fees, it’s the consumer that found out too late. Getting pre-approved from your local credit union versus the dealership itself will save you from any ‘hidden fees.’ Some of these fees actually can be beneficial, but there is a good chance your outside lender will have options. When borrowing from a credit union, you can be sure they are looking out for your best interest and won’t try to add in any extras that they aren’t confident you can afford. 

For example, Missouri Central Credit Union offers debt protection, gap coverage and extended warranties. Most credit unions offer these extra charges at a much lower rate than the dealership. Because Missouri Central is owned by its members, a loan that cannot be repaid can affect them in the long run, so they believe in making car buying as transparent and stress-free as possible.

6. Some first time car buyer tips you may not know.

Poor credit score does not necessarily stop you from being approved for a loan. While your interest rates may be higher, it does not mean you cannot purchase a vehicle.

Also, if you’ve successfully improved your credit score down the road, refinancing your auto loan would be beneficial to look into. Refinancing can mean a lower monthly payment and lower interest rates. Many people believe that when they’re signing their life away for their dream car that those terms are set and stone forever, which is, fortunately, false.

7. 50/50 Focus

Most car buyers spend far too much time researching to find that perfect vehicle, perfect mileage, perfect model, perfect everything; but is it really perfect if the loan isn’t? Getting the best and most suitable loan for you can be the difference between your dream ride.

Do 50% of your research on the vehicle itself, and the other 50% on loans and extra costs that come with it.

8. Title, license, and personal property tax cannot be forgotten.

Along the lines of the 50/50 focus, extra costs that aren’t directly associated with purchasing a car can really put a dent in your pocket, even if you are making payments. In Missouri, according to the Department of Revenue, you have 30 days from the date of purchase to pay sales tax on your vehicle. You must also title the vehicle within 30 days to avoid being penalized.

The current state tax for Missouri is 4.225%, plus local sales tax. You can use our cost calculator now to get a better idea of how much your monthly car payment may cost.

9. Last but not least, you can finally begin the search!

Yes, this should be the last step. Searching for your dream ride or just a daily driver is SO much easier and less confusing when you have specifics on how much you can spend. Far too often, consumers and first-time car buyers especially, become discouraged when their lender or the dealership in which you are buying from tells you that BMW is out of your price range.

Looking at the price tag is the most deceiving part about car buying, so save it till the end.