PGCFCU Blog

You have big dreams for your new ride, but a limited budget. Like many consumers, purchasing a car is one of the largest single expenses in your adult life. With so many choices, it’s hard to know where to start, especially with limited funds. Is a pre-owned vehicle a better financial choice? Should you purchase new to avoid the financial headaches that might accompany a used vehicle? These are only a few examples of the money-related questions you should ask before signing on the dotted line.

Follow these five steps to start on the path to car ownership without busting your budget.

Step 1: Check Your Credit

If you have no credit, a low credit score, are behind on payments to your creditors, or recently missed several payments, the first thing you should do is attempt to improve your credit. Generally, favorable loan terms are provided to consumers with a good credit history, stable employment, and income that can support the additional debt obligation. Even if you’ve been with the same employer for at least two years and earn an income higher than your peers, a poor credit score can mean loan denial. Loan applicants with higher credit scores are typically eligible for favorable financing (think single-digit interest rates).

Don’t wait for a potential lender to inform you of your credit status. Order a copy of your credit report from each of the major credit reporting bureaus by visiting AnnualCreditReport.com. If incorrect data appears on your credit report, follow the bureau’s dispute policy to remove it. This alone can improve your credit score. If late or past due payments appear on the reports, bring all accounts current as soon as possible. Paying down your existing debt can also improve your credit score. 

Step 2: Set a Spending Limit

Avoid selecting an auto loan based on the approval amount. Just as a budget-minded saver doesn’t use all of the available credit on a credit card, pass on borrowing the maximum loan amount for which you are eligible. Instead, examine how the overall loan costs might affect your ability to achieve other financial goals. For example, if you have upcoming travel plans or intend to make a significant purchase, consider how the amount you spend on a car might delay achieving those goals. When you set a spending limit, you remain in control of your finances.

Step 3: Do Your Research

Buying new has its advantages, but so does purchasing a pre-owned vehicle. Visit industry websites like Edmunds and Kelley Blue Book to compare features, determine the fair market value of the car, review safety ratings, and read consumer feedback on local dealerships. Knowing what you want before the test drive makes it easier to say no to expensive and unnecessary upgrades.

Step 4: Secure Financing

The sticker price only provides a ballpark amount of what you’ll spend on the vehicle. If you’ve done your research and used your research to negotiate a good deal, you still have work to do to ensure the purchase remains a good deal for you and your pocketbook. Haggling over the sales price may not be worth it if you wind up paying the savings back in interest charges. For example, if the dealer agrees to a reduction of $500 off the sticker price but charges interest rates in the double digits, the savings may amount to pennies over the life of the loan.

Compare finance offers from both the dealership and other financial institutions by looking at the loan terms and the interest rates. While it’s easy to focus on a monthly payment, remember that almost any car can become “affordable” with extended payment terms. Use an auto loan calculator to learn how different loan terms, down payments, and rebates might affect your monthly payment. Refer to Step 2 to determine what’s affordable within your budget.

Step 5:  Start Shopping

Take your time shopping. The excitement of purchasing a car can override your savings goals, so it’s critical to establish a cooling-off period for yourself. This means waiting to finalize the deal until you’ve completely weighed your options. Compare prices at dealerships and visit car manufacturer’s websites for additional incentives, rebates, and discounts. When you locate a vehicle that fits your personality and budget, you’ll finally be ready to make your purchase.

Before you sign the auto loan agreement, review the terms and conditions paying particular attention to the final cost of the vehicle. Is the “Total Cost” listed at the bottom of the contract within your spending limit? Let us ensure that it is. We can help you quickly slide into the driver’s seat of your new or pre-owned car with same-day approvals and rates as low as 2.99% APR (subject to change). Apply for a new or used auto loan today with terms up to 84 months.