First-Time Car Buyer? Don't Make These 5 Mistakes

4 MIN. READ

 

Key takeaways: 

 

• First-time car buyers often make costly mistakes, such as not comparing their lending options or financing at the dealership. 
• Power Financial Credit Union has a program for first-time car buyers with no credit requirements. 

Buying your first car is a huge milestone. However, navigating all the admin around this purchase is overwhelming. We've noticed some common mistakes, from skipping the auto loan pre-approval soft pull to picking the wrong lender.

Thanks to our first-time auto buyer program, we can help our members buy their first car at PFCU.

These tips will help you avoid costly car-buying mistakes. 
 

Mistake #1: Getting Your Auto Loan at the Dealership

It's easy to get swept away between the excitement of test-driving your future car and the helpful salesperson who assures you they can get you a great deal. 

We see many members who finance at the car dealership because it’s easy to do so, but you should know that this convenience has a price. The dealership adds its own financing fees to your loan balance, which results in a higher interest rate. Dealerships also often recommend the lender with the best commission rather than the financial institution that can give you a lower interest rate.

Instead of financing a car through a dealership, get pre-approved for an auto loan before you start the car-buying process to avoid the limited options and the pressure to pick a lender right away.

Don’t worry if you’ve already bought and financed your car at the dealership; you can refinance your auto loan later at a better rate.
 

Mistake #2: Not Shopping Around for Auto Financing

Getting pre-approved gives you an opportunity to shop around and compare multiple lenders. APRs, lending fees, and approval criteria vary greatly from one lender to another. 

When comparing your auto loan options, pay attention to: 
 

• The duration or term of the loan. 
• The interest rate and the total cost of borrowing. 
• Your monthly payments. 
• How closely does the lender look at your financial profile?
• The loan amount, or how much they're willing to finance.

When comparing lenders, you’ll need to fill out an application form before you can get an interest rate. Most lenders pre-qualify you with a soft pull, which won’t affect your credit score. 

If you want quotes from lenders who do hard pulls, send your requests within a week or two, so credit bureaus group the inquiries on your credit report. 
 

Mistake #3: Not Getting Your Finances in Order Before Shopping for a Car

When conducting an auto loan pre-approval, lenders can look at a few things: 
 

• Your credit score and credit history. 
• Your income. 
• How much of your income goes toward debt payments (your debt-to-income ratio).
• The amount of your down payment.
• Whether you're financing a new or used car.

Before shopping for a car, we recommend reviewing your finances and looking for ways to strengthen your profile. Something simple like paying off a credit card can improve your debt-to-income ratio and add a few points to your credit score.
 

Mistake #4: Overlooking Credit Unions

Improving your financial profile doesn’t always pay off because not all lenders will take a close look at it.

Applying for a car loan at a major bank can be tougher because large financial institutions tend to skip right to your credit score and only base their decision on this number.

Instead of making a split-second decision, a credit union will usually take a closer look at your application and consider other factors beyond your credit score. If you’re shopping for your first car, picking a lender who takes the time to look at more factors can increase your chances of getting approved and result in better terms. 

Credit unions also typically offer more competitive rates and lower fees. Member-owned cooperatives can pass savings directly to borrowers rather than generating profits for shareholders. In fact, the APR for a 48-month used car loan can be almost two percentage points lower with a credit union. 
 

Mistake #5: Settling for a Cheap Car

Shopping around for a lender can help you save thousands, but picking the right vehicle is just as important. 
We see many first-time car buyers looking for cheap vehicles because it means their down payment will go further, and they’ll need to finance a smaller portion of the vehicle’s value. 

The truth is that older and cheaper cars tend to depreciate fast and cost more in maintenance and repairs. From your lender’s perspective, a car that depreciates fast isn’t a good collateral asset, and they might charge more to account for the higher risk they’re taking. 

With a pre-approval, you’ll know exactly how much you can spend on a car and look for a reliable and well-maintained vehicle in your price range, rather than feeling pressured to go with the cheapest car you can find.
 

No Credit Car Financing With Power Financial Credit Union 

You can get a better deal on car financing by avoiding dealership loans, improving your financial profile, and comparing your options.

We know this can be a lot to navigate while you shop for your first car, which is why we’ve created a program for first-time auto buyers.

You can take advantage of our program as long as you’ve been at your current job for at least two months. The perks include financing terms of up to 72 months, loan amounts up to $45,000, and no credit requirements, other than not having a repo or foreclosure on your credit history.

Plus, thanks to our partnership with Auto Advisors, we can help you find the right vehicle.

Contact us to learn more or take a closer look at our auto loan options. 

FAQs  for First-Time Car Buyers 

What is the difference between a hard and soft credit pull? 

Soft credit pulls don’t affect your credit score, while hard pulls take a deeper look into your finances and show up as inquiries on your credit report. 
 

Do credit unions have better car loans? 

Credit unions tend to have lower APRs and look at more factors when making a lending decision, which can result in a better deal for you. 
 

What’s the best auto loan for a first-time buyer? 

There is no single best loan for first-time car buyers, but you should shop around and look for a lender willing to look at more factors beyond your credit score.
 

How can I get an auto loan with no credit? 

If you have a limited credit history, you should look for a lender like Power Financial Credit Union, which bases its decisions on a broader range of financial factors.