First Car Loan

A first car loan can be a daunting task for anyone, both teens and adults. If you're an adult who has an established credit history, perhaps a mortgage or monthly rental payments and credit cards that you pay off, then you don't have to read any further as you'll already know why it is important to establish a credit history to get a loan of any kind, especially a car loan.

Important Areas for a First Car Loan

• Credit history
• Current credit score
• How to establish credit
  
• What lenders look for
• Loans for new cars
• Loans for used cars
• Paying cash for a car
• First car insurance

Most teens, however, do not have a credit history. In order to establish a credit history and receive a current credit score, you'll need to have had credit cards, rent payments, a job and other means that the loan companies can track to see if you're a good credit risk or not.

If you're a teen who doesn't want to rely on your parents or are an older teenager who wants to take matters into your own hands, then there are things you can do to establish a credit history. Two items that will help you establish a credit history are a gasoline card and a major credit card or a credit card from a major department store. If you drive your parent's car regularly then get a gasoline card and make regular payments. For all of your credit cards make regular payments and establish at least 6 months of paying off all your bills on time.

Again, if you're an older teen or an emancipated younger teen, having the same job for 6 months or more will help along with paying rent (to someone other than mom and dad). Once you have established credit then know your credit score before you get your first car loan from the dealer.

You can find out your credit score by going to one of many agencies. To find out how to get a free annual credit report, see this government FTC website. If you have a credit score above 680 you're in good shape as you'll receive a lower interest rate loan than most. If your credit score is between 550 and 680 then you'll pay extra in loan interest. If your credit score is below 550, then you're better off either waiting to buy the car and taking measures up your credit score or pay cash for the car.

These tips for first car buyers apply to both new and used cars. With new cars you can expect to pay a lower interest rate than those buying used. Your new car will also be protected under your state's lemon laws whereas, depending upon your state, the used vehicle may not be protected. So, if buying used be sure to get a warranty.

Also if buying used be sure run a Carfax or Autocheck report to make sure the car was not damaged by accident, flood or another state's lemon law before purchasing it. Also, before buying used, bring the vehicle to a mechanic to put it up on the rack and check it out. It may cost $100 to do this inspection but it is well worth the time, effort and cost.

Now, many teens cannot go it alone when buying either a new or used car. In this case, they may ask a parent to co-sign the first car loan with them. Co-signing a loan puts both parties at risk. If one party doesn't pay, the other has to otherwise it will affect their credit rating for at least 7 years to come. So, suppose a teen doesn't pay the monthly loan payment and the parent was unaware and didn't pay it either. This bad mark will go on both the teen's and the parent's credit rating.

Now, suppose the teen wants to rent an apartment in the next 7 years and the parent wants to buy a new home. Good luck with that as the missed loan payments will bite both parties in their behinds.

If credit is out of reach right now, then getting a job and buying a cheap first car for cash may be the way to go. My first car was a 1969 Dodge Monaco in which my parents paid $200. Yes, that price is correct. It was rusting out, had bald tires and was basically a hazard to drive. So, I got a job and after 9 months I had enough money to pay cash for a Chevy truck, had gas money and paid part of the insurance with my parents paying the other part. This is another options for teens who want the independence of working a job and owning their own car.

The last point I want to make is about first car insurance. Insurance for a first time teen driver, especially a male can be extremely expensive. Many times it will be cheaper for the teen's car to be added to the parent's insurance policy than it will be for the teen to purchase insurance him or herself.

That said, it still won't be cheap. Parents may require the teen to pay part of the insurance premium in order to gain and retain the driving privilege. Some of the aspects that may help reduce the cost of insurance policies right away are anti-theft alarms and devices, anti-lock brakes and other safety equipment, plus over time a good driving record may result in a good driver discount.

This is a summary of some of the necessary aspects to attaining a first car loan for teens and other buyers. Please see the other pages for more detailed information.