For many of us, buying our first car is the most exciting part of growing up - better then graduating from high school, better then turning the legal drinking age and definitely better then voting for the first time! It is a step into the adult world with all its freedoms and responsibilities with part of that step including what type of auto financing to use.
Ideally, the best way to buy your first car is out-right - a cash sale with no debt or owing anyone, or any financial institution, a dime. However there is only one catch to this way type of auto financing - you have to save the money up before you can buy your first car! If your vehicle purchase aspirations are the $500 rust bucket down the street, you might be looking at a manageable amount of money to save. However, most of us want a safe and reliable automobile and that means it is going to cost a few thousand dollars - not such an easy amount to save. Back to the drawing board on how to finance that first auto.
What about asking your mom and dad to cover your auto financing? You can even come up with a million reasons why it would be better for them to loan you the money then have to continue to be your personal chauffeur or, even worse, hand over the keys to their vehicles when you need to go somewhere. The problem with asking mom and dad for the money to finance your car is they then own your soul. Even if you make your monthly payments to them on time and with a smile on your face, they will still watch every penny you spend like it is their money that is taking you and your girlfriend to the movies or out of a bite to eat. Parents are too close to home when it comes to auto financing - who wants or needs their bank lurking in their wallet all the time?
Banks are the traditional institutions you turn to for auto financing. They are there to loan money to people like you, aren’t they? Not necessarily. Banks are still a business and as a business, they strive to make money, not lose it. So if you do not have a credit history yet there is a good chance the banks will turn you down for a car loan. It is a bit of a catch twenty-two actually - you cannot get a credit history without borrowing money and you cannot borrow money without a credit rating. What the bank will want instead of a credit history is either a co-signor or security guaranteeing that you will pay the loan off in full. Co-signors are usually a parent which takes us back to the previous paragraph and security is usually something tangible that you can put against the loan i.e. your house, your investments, your other vehicle. As a teenager or young adult, the chance of having any form of security is pretty slim so the bank will probably not help you with your auto financing.
Next is auto financing through the dealership where you are buying the vehicle. This type of purchase has two major strikes - first is that it makes it harder to haggle over the price of the vehicle and second that you have to purchase from the dealership that is willing to finance your vehicle purchase, thus narrowing your selection. Remember, the car salesman is there to make a buck off of your purchase so their motives are not necessarily to get you the best deal possible with the fairest financing available.
The answer? Independent auto financing through companies that are not about selling you a vehicle but helping to get you behind the wheel of the car you want with financing terms you are comfortable with over the long term (remember, circumstances change and what looks good today could swallow you tomorrow!). True - independent finance companies are still businesses and they are there to make money just like the banks. However, they are often more willing to take a risk on a person with no credit history and they look beyond what is on paper to who the person is that is asking for financial help. And when it comes to financing your first car that can make the difference between the rust bucket down the street and the ride of your dreams!
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