So, you’re finally ready to start adulting and buy a new car. Congratulations – well, almost.
While you may already know this, a new car is one of the most expensive purchases you’ll ever make. According to AutomotiveNews Canada, the average transaction price of a new vehicle reached$33,464 in 2017, up 3.2 per cent from $32,430 in the previous year.With this lofty amount looming, how are young drivers supposed to raise enough cash to buy a new car?
For starters, you can start saving money. You can also consider car financing to buy a new car. This type of financing will help make buying a car a reality as it will allow you to make monthly payments instead of coming up with a boatload of cash all at once. Your next question may be: How do young drivers finance a car and what, exactly,is a car loan.
WHAT IS A CAR LOAN AND HOW DOES YOUR CREDIT AFFECT FINANCING?
Car financing for young drivers is similar to applying for other types of loan, like a business or personal loan. In a nutshell, this is the amount of money a bank, credit union, car dealership, or online lender is willing to loan to you in order for you to purchase a new car.
Typically, you’ll need to have some money saved up for a down payment. And, before approving your loan application,lenders will run a credit check on you to help them make a decision on the financing terms.
Once you have been approved for a car loan,you’ll get an interest rate based on your credit score, income, and other factors. All things considered, the better your credit score and credit history, the better the car loan you’ll likely get.
While some lenders may still approve financing applications for young drivers with poor credit, these drivers will likely be faced with higher interest rates and less favorable loan terms.
To help you prepare to apply for car financing, take a look at our advice for young drivers.
1. BUILD YOUR CREDIT
As highlighted above, building your credit score is key to getting the best car financing. For starters, here are just a few steps you can take to improve your credit score:
BE AN AUTHORIZED USER ON SOMEONE ELSE’S CREDIT CARD
Ask a family member or friend with excellent credit to help you out here. By doing this, your credit will be linked to that individual’s positive credit history.This, in turn, will help boost your credit score over time.
APPLY FOR YOUR OWN CREDIT CARD
If you do this, just make sure you make your payments on time every month, and preferably in full. Why? Because your payment history is a major factor in building positive credit. It also shows lenders that you can pay your bills on time and this may improve your chances of getting a car loan.
CONSIDERE A SECURED CREDIT CARD
If you can’t get the credit card you want due to low credit or no credit at all, you may be able to apply for a secured credit card. This type of card requires a collateral deposit to get approved. But, if you pay your monthly bill on time – or better yet, pay it off in full each month – you’ll begin to build positive payment history and improve your credit score.
KEEP YOUR CREDIT CARD DEBUT LOW
Financial experts recommend keeping your credit utilization under 30-35%. What does this mean? It means that you try not to spend more than 30% of your available credit card limit. So, say you have one credit card with a $3,000 limit. If you follow this rule, you would never rack up more than $1,000 in credit card charges.
MAKE ALL YOUR LOAN PAYMENTS ON TIME
If you have other types of loans – like a personal loan – make sure you make payments every month and don’t be late.
2. SAVE MONEY
While you’re working on improving your credit, you should also be saving up money fora down payment on a new car. Here are our top tips to save up enough cash to buy a car:
- Create a budget. There are many different types of budgets, including the 50/30/20, zero-based, and envelope systems. The key here is to figure out which budgeting style works for you and then stick to it. To learn more about starting a budget, check out this budgeting guide from the experts at LendingArch.
- Automate your savings. By automating, you can save money without even thinking about it – making this one of our top hacks for reaching your savings goals. You can start by designating 10% or more of your paycheck into your savings account every month. The rest of your money will go into your checking account.You likely won’t even miss the amount in your savings account. Better yet, it will no longer be readily available for you to spend frivolously.
- Curb your spending. This means cutting down on non-essential spending as well as searching for other ways to save money, like scouting out deal sites and only buying items on sale. While you’re at it,watch out for your memberships and subscriptions. If you aren’t using the many more, ditch them as this can free up serious cash.
3. SHOP AROUND FOR THE BEST CAR FINANCING
Once you’ve got a down payment saved up and your credit score is in a good place,it’s time to shop around for the best car financing for young drivers.
You have many options for car financing in Canada, including your bank or credit union, a car dealership, or an alternative lender.
If you’re a young driver, an online loan through LendingArch may be your best bet.Why? LendingArch work with you to figure out what type of financing would be best for the car you want to buy. You’ll also readily be able to determine whether you can afford the monthly payments.
LendingArch even factors in your credit score to direct you to the best financing partners for you to get your new car. Better yet, you can apply for a car loan from the comfort of your home.Now that’s what we call easy-peasy car financing.