Graduation time is just around the corner. And for a lot of people, that means they are about to buy their first new car. A new car is a sign of adulthood and will be needed by many people as they search for jobs or commute to work for the first time.
Nearly all of them will have to finance a car – but most won’t understand what that entails. This makes them easy marks for shady dealerships and auto finance companies looking to rip them off.
With that in mind, here are the 7 things you need to know if you are about to be a college graduate looking for your first auto loan.
1. Never, ever agree to an adjustable rate auto loan. This is one of the most common ways to get yourself in the hole. You get offered the adjustable rate loan, and only told what your initial monthly payments will be. In six months or a year, they adjust the rate – and suddenly you could be paying a couple hundred bucks more EVERY MONTH for your car payment. That can come as a really nasty shock down the line. Only ever agree to a fixed-rate loan with fixed-rate terms.
2. You don’t have to finance through the dealership. Many dealerships will act like you have to get your auto loan through them. You don’t have to! In fact, this can often be one of the most expensive ways to get an auto loan. Instead, go to your bank first and see if they will give you an auto loan and, if so, at what rate.
3. It’s important to know what you can realistically spend per month for your auto loan. You are probably about to start paying off your college loans, you may need to get your first apartment, and there are a lot of other expenses that come with heading out into the “real world.” Don’t put yourself into bad financial shape by getting a car loan you can’t afford. An auto loan calculator can help you with this.
4. Very long-term loans are a very bad idea. One way dealerships try to get you to buy a car you can’t afford is by talking about super-low monthly payments. What they don’t tell you is that you could be making those payments for up to eight years! You really won’t want to own the car that long – and by that point, it will have lost nearly off its resale value. You want to avoid any car loan that is more than three, or at most four years long.
5. What you are actually paying for the car in total is much more important than your monthly payments. So, don’t try to negotiate a monthly payment at first. Instead, negotiate what the total price for the car will be. Then once you’ve agreed on that, talk about what it means in terms of monthly payments. This can save you a lot of money over time.
6. Always put some money down. Sure, it sucks to have to hand over some of your graduation money to a car dealership – but no-money-down auto loans are something you don’t want to get sucked into. Their entire purpose is to make you pay more in interest over the course of the loan. Put as much money down as you can reasonably afford.
7. Always wait a day before signing the auto loan papers. The goal of most dealerships is to get you to sign on the dotted line before you have time to think about it. Instead, get them to print out the auto loan contract. Bring it up and read it yourself. Show it to someone you trust. Look at it closely for anything that seems shady. Don’t go back with it signed until you are positive it is exactly the auto loan you want and can afford.