All You Need to Know About Buying a First Car

Guide to buying a first car for teensFor teens and young adults, buying that first car can be an overwhelming experience. There just seems to be so much you need to know in order to make the right decision and not make huge mistakes.

It’s true that buying a car— any car — can seem a bit complex at first, but if you take the time to learn the basics and understand how the process works, you’ll be doing it right in no time.

At FirstCarGuide.com we take you through how to choose the right car, how to inspect a used car, how to know what to pay, whether to pay cash or buy with a loan,  how your credit affects your ability to get a loan, how to buy insurance and what insurance is required, and what happens if you have an accident.

Learn how to buy a car from an individual seller and what to watch for. How buying from a used car dealer works, and potential problems. Whether to buy new or used. What’s too much mileage.

We also discuss whether it’s better to buy or lease, how leasing works, and how to calculate car lease payments and costs.  Who should lease and who shouldn’t. Which cars are best to lease.

Cheapest Car Leases – $199 or Less

best car lease dealsMany car companies offer special lease deals on selected models and styles each month. Some are very affordable at less than $200 a month.

This month, we list over 50 leases for $199 or less. The list gets larger every month as car manufacturers increasingly work to attract new customers by offering low monthly car costs.

These are usually genuinely good deals that are worth considering as long as you like the models and styles being promoted. The deals usually only last for one month, require a down payment, and have a specific mileage allowance — usually 1000 miles per month, average. Be aware that these deals may vary by region of the country.

Most lease deals are for 24 or 36 month terms. At the end of the lease you can simply return the car, or you can purchase it for the guaranteed purchase price stated in your lease contract. In some cases, you may have equity in the car (it’s worth more than the purchase price) such that it makes sense to buy it and sell it for a profit, or use it as a trade-in for another new vehicle.

Here are the cheapest car lease deals being offered at this time:

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Car Buying Checklist – 50-Point Self-Inspection Guide

checkmarkUsed Car Inspection Checklist

Use this handy 50-point checklist when buying and inspecting a used car. Print it and take it with you.

 

Wheels and Tires

chkboxAre tires worn to unsafe level (less than 2/32″ tread depth at lowest point)?

Tires with less than 2/32″ tread depth at lowest point are unsafe and should be replaced immediately. Less than 4/32″ is unsafe in rain. Less than 6/32″ is unsafe in snow. Hint: Buy a cheap ($5) tire tread-depth gauge at any auto parts store, Wal-Mart, or Sears

chkboxAre left/right tires worn unevenly on front? On rear?

Unevenly worn left and right tires are unsafe and cause handling and steering problems. It might indicate a bent or twisted frame as a result of an accident. Always replace tires in pairs

Continue reading Car Buying Checklist – 50-Point Self-Inspection Guide

How Does a Car Loan Work?

There are essentially two ways to buy a car. You can pay cash, or if you don’t have the necessary cash, you can get a loan. Actually there’s another way — leasing — that we won’t discuss here, but is discussed in a number of other articles on this web site.

When you get a loan, you are borrowing money from a bank, credit union, or finance company and promising to repay that money, with interest, over a specified period of time. You use that money to pay the dealer for your car. Although car buyers can arrange their own car loans with local banks or credit unions, many choose to let their car dealer arrange the loan for them.  Dealers don’t provide loans themselves but work with banks or finance companies on customers’ behalf.

So if you buy a brand new Ford, and need a loan, the Ford dealer will send our loan application to Ford Credit Corporation, who will provide the loan (assuming you are approved). Ford Credit pays the dealer for the car and begins sending you bills for each monthly payment. From now on, until the loan has been paid off, you will be dealing with Ford Credit, not the car dealer. It often takes a few days for the approval to come through.

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How Are Car Leasing and Renting Different?

Uninformed automotive consumers often confuse car leasing and car renting. They sometimes think the two are the same. They would be very wrong.

The confusion is somewhat understandable because of the similarity of terms to that of apartment leasing and renting. Many of us can remember our parents telling us that renting or leasing an apartment was “throwing our money away” and that we should buy a house instead. Until the recent recession, it was true that you could invest in a house and get all your money back, plus more, when you decided to sell the house later. The house “appreciated” in value and was a smart use of your money.

Cars are not houses or apartments, and don’t act the same. All cars, unlike houses, “depreciate” in value over time and miles. They never appreciate in value — except possibly if they turn out to be classics 30 years from now. You always lose money with a car, whether you buy with cash, finance, lease, or rent. Cars are never good investments (except for some old classics). The average new car will lose half its value in three years, and even more in the following years, regardless of what was paid for it.

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How to Buy a Car from an Individual Seller

How do I buy a car from an individual private seller — not a dealer?

When you buy a car from an individual, you pay with cash, a money order, or a bank cashiers check. The money can come from savings, a checking account, a family loan, or a loan from a bank or financial company. Most sellers do not like personal checks.

Buyers sometimes expect a private seller to “take payments” but any smart seller will not agree to such a plan. It is too risky. As a buyer, it’s better to get your own loan.

Requirements for a car loan

Loans from banks or finance companies require that you have a not-so-bad credit score, have an income sufficient to repay the loan, and have no excessive debts that might interfer with your ability to repay the loan. Loan companies do not want to give money to people who are unable to repay a loan.

Buying a car with bad credit – or no credit

People who have a bad credit history — a history of not making payments on time or of missing payments on other loans – will have problems getting a car loan. The lender will assume that if you have had problems in the past, there is a good chance that you’ll have problems again.

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Zero Down Car Lease

zero down car leaseLeasing can provide an affordable option to anyone needing car financing at minimum monthly cost. Upfront cost can also be minimized by paying no money down — $0 down payment.

Lease payments are 60% – 110% lower than loan payments for the same car. And most leases can be obtained with zero money down— $0 down.

So what’s the catch?

First, leasing is a bit more complicated than buying a car with a loan. If you don’t understand how leasing works, or how to determine if it’s right for you, you should skip it until you take the time to learn about leasing — from LeaseGuide.com.

Second, in order to get a zero down car lease, you need a good credit score. In fact, you may need a better score than you would need if you were buying with a loan. You should always know your current credit score before going car shopping. Actually you have three scores, from the three major credit bureaus, all of which will be a little different. Furthermore, you can’t know which of the three your car dealer and finance company will use to check your credit. Therefore, it’s recommended that you know all three ahead of time. Get your free credit score and $1 credit report from TransUnion.

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Auto Loan Rates – How to Get the Best Rates

car loan rateWhen you buy a car with a loan, you not only pay back the amount borrowed but you also pay finance charges (interest).  Each month’s loan payment consists partly of principle and partly of interest. Actually, the amount of principle and interest changes each month, although the total remains the same. In the beginning, you pay more interest and less principle. Near the end of the loan, you are paying nearly all principle.

The amount of finance charges you pay depends on the interest rate and the length (term) of your loan. Interest rates can vary between different lenders. The interest rate you pay also depends on your credit score. Someone with poor credit will pay a higher rate than someone with outstanding credit. More about credit later.

Interest rates are generally higher for used cars than for new cars. And longer loan terms have higher interest rates than shorter loans.

At the time of this writing the national average new-car interest rate is about 3.0% for a 4-year car loan and a bit higher for used car loans. Dealers sometimes add a percentage point or two for additional profit. This is called “reserve.”

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5 Tips for Getting an Auto Loan

tips for getting auto loansFor many people, an auto loan is the most significant and largest financial transaction they make in their lives — at least until they get a home mortgage. Because it is so significant, it makes sense to take the right steps and avoid mistakes in the process.

1. First, shop around for auto loans at your local banks, credit unions, and financial companies. You don’t have to finance through your car dealer. In fact, by shopping around first, you’ll know if your dealer’s loan offer is good or not. When you talk to a bank or credit union, you may also be able to get pre-approved at a guaranteed interest rate and for a given amount. That way, you’ll know what price car you can afford when you go to your dealer. You are not obligated to accept any loan offer you receive, even those for which you are pre-approved.

2. Know your credit score. Your credit can make the difference between getting approved for a car loan or not. If you are approved, your credit score will determine the interest rate you pay and the down payment amount you’ll have to make. Car companies offer special promotional deals each month, such as 0% APR loans and low-payment leases, which require good credit. To get the best rates and best deals you’ll need a credit score of 700 or above. Get your free credit score and $1 credit report from TransUnion.

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0% Car Loans – Zero Interest

Car manufacturers are constantly offering low-interest loans and other incentives to help sell cars.

With “normal” interest rates around 3.0% at the time of this writing, it’s not much of a stretch for car companies to offer 1.9%, 0.9%, or even 0% loan rates.

A zero-percent (0%) loan means no interest at allno finance charges for the life of the loan. Some car company deals limit no-interest loans to 36 months but some extend it all the way to 60 or even 72 months.

Understand that no-interest loans are not something you can get by negotiating with a dealer. These promotional loan deals are only offered by car manufacturers on selected models and styles for a limited amount of time.

How much money do you save with a 0% loan?

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Quick Guide to Buying a Car

guide for first car buyersFirst-time car buyers are often unaware of everything that’s involved in the process. It’s not surprising because it’s not simple and not like buying anything else that we normally buy, even a house.

We’ll explain it all in this quick guide to buying a car. Further details can be found in the various articles posted on this web site.

1. Decide on a Car

Choosing a car for the first time can be a bewildering experience because there so many choices — old cars with lots of miles on them, newer cars with better safety and tech equipment, small cars, compact cars, sedans, coupes, large cars and SUVs, sports cars , fast cars, fuel-efficient cars — not to mention all the different makes, models, and styles that are available.

Decide what kind of car you want or need and what’s important to you. Do you want good looks, safety, good gas mileage or high performance, automatic or manual transmission, 2-wheel drive or 4-wheel (for winter weather), sporty 2-door coupe or 4-door sedan or convertible, passenger car or roomy SUV or minivan? Do you want good reliability and dependability, and low insurance cost? What is is your budget and how much can you afford, either as a cash purchase or as monthly loan payments?

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Low Interest Rate Car Deals

Car manufacturers and dealers often have special loan rates available for limited-time promotions. Are these deals worth considering? Do you save money by accepting low-interest loan deals?

We see a lot of variations of low-interest loan rates from car manufacturers. Some are 3.9%, some, 1.9%, some 0.9%, and even 0%. What’s the difference? Is a 0% APR deal much better than a 1.9% APR deal?

First of all, low-interest loan rates are almost always limited-time promotional deals being offered by finance companies associated with a car manufacturers, such as Ford’s Ford Credit or Honda’s Honda Financial Services. Dealers do not set loan rates. Customers sometimes incorrectly think that, with a high credit score, they should be able to get a 0% or super-low interest rate at any time.

Let’s take a look at how low-interest new-car loans stack up.

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First Car Questions

We answer questions from first-car buyers almost every day when we participate on the Yahoo! Answers web site in the Car Buying and Selling section. The majority of those questions come from teens and young adults who have little or no experience in buying, trading, or selling cars.

In the few years that we’ve been doing it, we have seen certain common questions come up over and over again. Some come up numerous times in a single day.

We thought we would post some of the most frequent questions here, and answer them just as we do on Yahoo! Answers.

Here goes.

Q.  How many miles are too much for a used car?  How many miles will I get from this used car?

A. All used cars are different. It’s not possible to say that a certain car of a certain age and of a certain brand that has 150,000 miles is a good car. It depends on how it has been driven and cared for. Some cars with only 50,000 miles are ready for the junk yard, while others with 150,000 miles are good for another 150,000.  Even brands such as Honda and Toyota, that are known to be very reliable, can have serious high-mileage problems. Therefore, don’t make a purchase decision based on mileage alone. Get a professional mechanic to inspect your car before you buy. It’s the actual condition of the car, not mileage, that is important.

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Do I Need A Co-Signer?

Who needs a co-signer for a car loan? How does it work?

need a co-signer for car loanNew or first-time car buyers are often surprised at being turned down for a car loan because they have no credit history, which unfortunately has about the same effect as having bad credit. Getting a co-signer might be the answer.

Lenders want to see that a borrower has a good record with previous loans and credit cards. Without a history of credit, a borrower represents a risk to lenders. If they don’t know a borrower’s history, they take the low road and assume the worst.

It’s a familiar “catch-22″ situation in that you can’t get a loan to establish credit without already having credit. So what is the answer?

What is the answer?

The most common solution is to have someone “co-sign” your loan contract. Typically, it’s family member who has a good credit score. A co-signer plays no part in the loan unless the primary borrower fails to make payments. In that case, the loan company would have the right to seek payment from the co-signer.

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How Do Car Notes Work?

car leaseCar notes, or car loan payments, are the monthly payments made after a car is purchased with a loan from a bank, credit union, or finance company. Some dealers provide financing directly, in which case car notes are made directly to the dealer, but in most cases dealers simply arrange financing with a bank or finance company that he partners with. In that case, car note payments are made to the bank or finance company.

Car buyers who need a loan can apply at a bank or credit union prior to looking for a car. In this way, they can be pre-approved and will know exactly how much they can borrow and what their loan finance rate (interest rate) will be. When they finally decide on a car and are buying from a dealer, they can compare the dealer’s financing with the bank’s financing and go with the best deal.

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For First Car Buyers and Other Car Buyers