Being a first-time car buyer can be an intimidating process, but having a solid financial plan and a good credit history can help you qualify for a favorable car loan.

Knowledge is power. Good information can help you overcome just about any form of inexperience. This is especially true when it comes to qualifying for a car loan and negotiating favorable interest rates and term lengths.

Your leverage in negotiation as a first-time car buyer typically derives from credit history, debt-to-income ratio, and whether or not you’re using a co-signer.

Whether you're purchasing a new or used car, the

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super app

Jerry

is here to give you the inside scoop on the world of auto financing for your first vehicle purchase. Let’s dive in.

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How do car loans work?

As a first-time car buyer, it’s important to understand your options. You can pay in cash if you're able to afford it—otherwise, you’ll need to take out a car loan. A combination of a cash down payment and a car loan is not only recommended but required by most lenders.

A car loan allows you to purchase the car and pay off the debt over time. At the time of the agreement, you will be negotiating your down payment, principal loan value, a good interest rate, and loan terms. All of these conditions will add up to the total cost of the car loan.

Check out Jerry’s loan calculator to find out what your payments could look like.

Now that you’ve determined what car loan conditions work for you, it’s time to head to a lender. Dealerships usually offer quick and simple car loans at the point of purchase, but you're more likely to get a better deal for your car loan through a bank or credit union.

Getting quotes from multiple lenders to compare is the best way to increase your chances of finding an affordable payment.

Advantages of car loans for first-time buyers

The more you know about the process, the smoother your first-time purchase will go. Some lenders offer First Time Buyer Programs to make buying your first car a little easier as well.

Be wary of lenders who are more hesitant to give car loans with favorable terms to first-time buyers—even without a long credit history. Stay on your toes, and know what you’re eligible for by getting pre-approved. More on that later!

MORE: How to get a car loan from a credit union

What makes it hard to get a car loan as a first-time buyer?

Getting a car loan as a first-time buyer can pose some challenges due to some dependent financial factors. Let’s take a look at some of these:

Minimal credit or employment history: Many first-time car buyers don’t have an extensive credit or employment history, so lenders are less likely to give them low-interest rates or favorable loan terms.

Low credit score: Lenders typically target a credit score of 660 or more. If lower, the lender may decline to offer you a car loan or offer you a loan with unfavorable conditions.

Lack of savings: Larger down payments of 10 to 20% on a vehicle can get you more favorable loan conditions.

Inexperience with lenders: Some lenders can be pushy with add-ons and

extended warranties

. Don’t let inexperience force you into a bad loan.

Key Takeaway Proving your capacity to repay a car loan as a first-time buyer can be challenging—but the favorable loan conditions you receive in return are worth it.

MORE: What is a good credit score for a car loan?

How to get a car loan as a first-time buyer

Before we elaborate on how to get a car loan as a first-time buyer, let’s look at the conditions you’ll ideally want to have around your loan:

Loan terms around 60 months (72 to 84 months is average)

Below 3% interest rate (3.5% new, 5.5% used is average)

Now, let’s dive into some strategies on how to secure a loan with these terms.

Take stock of your credit and finances

First and foremost, you need to check your credit score. If you have a good credit score —above 660—you’ll likely get approved for a car loan with lower monthly payments.

With any score below 600, you could be subjected to higher interest rates—or even get rejected if your credit score is in the 500 range.

Next, calculate your debt-to-income (DTI) ratio by adding up all your monthly bills and dividing the total by your gross monthly income.

A lender would like to see your total debts and bills for a given month be less than 50% of your gross income. Taking it a step further, lenders prefer that your monthly car loan payment is no more than 10% of your monthly gross income.

Your monthly loan payment is just a single expense—don't forget about other costs like maintenance, gas, depreciation, and parking. Use the

Edmunds True Cost to Own Calculator

to estimate the total monthly cost for your loan and general vehicle ownership.

Consider a loan from a credit union

Even if you have limited credit or employment history, a credit union car loan may be an option. Many credit unions have First Time Buyer Programs that have lower interest rates and better approval odds compared to the dealership or traditional bank.

Get pre-approved before you shop for cars

Pre-approval doesn’t guarantee you a car loan, but it does empower you to know what you can afford based on your credit profile.

Getting pre-approved is always a smart idea. This can make it easy to get quotes from several lenders and even give you some negotiating power with the lender you choose. It makes their job easier, so they are usually relieved to see pre-approvals.

Consider a co-signer

Even though buying your first car can feel like a step toward independence, using a co-signer for a car loan can be a financially savvy decision to make.

What does that entail, exactly? When you sign on for a loan, you’ll add another liable name to the paperwork. If you fail to make payments on the loan, the co-signer will be held responsible.

Consider it a backup plan for the lender. With a co-signer, they may be willing to offer better loan terms, especially if you have bad credit or limited employment history.

And if you're a minor (younger than 18) looking to purchase your first vehicle, you will need a parental co-signer. Minors are not allowed to legally enter into contractual car loan agreements.

Be prepared to wait for the best deal

Always remember: it benefits the dealership to sell you the car. Be patient and advocate for yourself throughout negotiations. It’s easy to jump at the first qualified offer as a first-time buyer, but it's important to get quotes from several lenders and find the one that works best for your long-term finances.

Be aware of lenders trying to package unnecessary add-ons and over-extended warranties into your car loan agreement.

MORE: What to do after buying a new car

Save on car insurance with Jerry

By now, you should have a good idea of how to strategize your financial plan as a first-time car buyer. The final, potentially most crucial step is to make sure you have car insurance. Thankfully,

Jerry

can help you find savings to keep your finances in check.

Buying

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Jerry won’t bother you with spam calls or sell your information, and you could save an average of over $800 on your car insurance!

“I’m young and just got my first car, so choosing an insurance company for the first time was scary. My friend recommended this app to me and
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What are the ideal terms for a car loan?

You should target loan terms around 60 months (72 to 84 months is average) and an interest rate of 3% or less (3.5% new, 5.5% used is average).

What credit score do I need as a first time car buyer?

You should target a credit score of more than 660 to receive favorable terms on your car loan from your lender. First-time car buyers with lower credit scores may be subject to higher interest rates.

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