Almost everyone remembers his or her first car fondly. Lets be honest, not everyone remembers their first buying experience so fondly — especially if they financed it. What most first- time buyers hear when they try to buy a car is “Sorry, you’ll need a cosigner and/or a lot of money down.” Why is this? Why are some first-time buyers easily financed with good interest rates and others need large down payments just to get approved? What makes buying your first car so difficult? I'm sure you have a thousand questions and most likely dont understand the differences between good credit, challenged credit, and no credit at all. That's ok! Its not like they teach a class on buying your first car and most of us aren't even taught how credit works and how it will affect you for the rest of your life. Well, the simple answer to these questions are the people with the money — the lenders — have only one thing to go by when deciding whether to approve a loan: your credit history. But a first-time buyer doesn’t have any credit history. From a lender’s point of view, that makes loaning them a large amount of money a risky proposition. Remember, you are not asking a bank for a car. You are asking a bank to borrow thousands of dollars which you will be expected to pay back over the course of the loan contract. So what does a person with no credit history (and no suitcase full of cash) do if they need a car? Let's go over some tips to help your car buying experience and I hope will save you thousands upon thousands of dollars!

The most common mistake I see is trying to buy a car that is too expensive or too cheap. Trying to buy a car that is out of your budget might make sense but let me explain why trying to buy a car that is too cheap. Cheaper cars generally will be older with higher mileage and are not a desirable type of collateral for the lender. The term will be cut back and usually higher rates as well which both increases your payment. Banks want to lend on cars that are lower risk and will hold its value for the term of the loan. That being said everybody's budget is different depending on how much vehicle they can afford. Look for something 3 to 5 years old with lower miles (but still not too expensive), and take advantage of the longer term and lower rate.

Okay, now lets’s look at what you should do. First, plan ahead. Don’t wait until the day you need a car to start shopping for one. If you’re 16 or 17, start preparing for your first car a year or two ahead of time — not the day before your 18th birthday. Get a job that supports the car payment and stick with it. Lenders want to see you have the ability to repay the debt and that you have stability. Generally around a year or more on your current job and a minimum of $1500-1800 a month gross(before taxes) income or $9 an hour working 40 hours a week. Income below that will most likely need a co-owner with good credit/income.

Again, this sounds pretty obvious, but you’d be surprised how many First Time Buyers try to buy a car with no money down or even money to insure the vehicle. (The majority, I’d say.) Since your credit is limited or dont have any at all the lender most likely will want an investment into the vehicle from you. In simple terms they most likely wont lend 100% of a cars value until you have built your good credit history. There is no hard or set rules on exactly how much you’ll need, but I would say $500-1000 is a good start — and may just make the difference between getting that first car or not getting it. The more money you have to put down the better the loan approval and interest rate will be because it lowers the lenders loan to value (how much the car is worth vs how much cash they loaned you) of the vehicle.

The best way is by building three lines of credit. For the first two, go out and get two credit cards, both with small credit limits, and use only a small portion of your available credit on each card, say 20-30%. If your limit is $500, keep the balance around $100-150. For your third line of credit, go to the bank your mom and dad use, or a local credit union, and open a checking account. Once you have $1000 in your account, apply for a small loan using that money as collateral. Pay that loan off over the next six months. That will give you the third line of credit lenders like to see. It also helps you establish a relationship when you need to easily borrow money in the future because you have already proven you will pay what was borrowed back.The key is to always pay on time. Even one late payment or collection can hurt/cost you alot of money. Think of it this way, if the only thing on your credit history is a $100 cell phone collection that was never paid, you will have bad credit and ZERO good and the $100 not paid could keep a lender from loaning you $10,000 on a vehicle. It will cost you way more money in the long run with higher interest rates than it would to just pay the payment/bill and avoid the potential collection.