A First-Time Car Buyer’s Guide: Car Loan Requirements and Jargon

Buying a new car is an exciting time. For some people, owning a car represents their quality of life. It shows their ability to make a major purchase with their hard-earned money. Everyone looks forward to the drive, the style, and the experience of owning a new vehicle. However, buying a new car has many challenges.

The first challenge is knowing what kind of car you want and what model you can afford. This decision can be difficult because you have many options in terms of size, style, performance, and price. You also need to consider whether a certain car addresses your needs and fits your lifestyle. The second challenge is finding someone trustworthy who can help you find a good deal on your desired car model.

The third challenge is understanding car loan requirements. Of course, you will need to pay for your new car in full, but if you don’t understand some of the concepts and jargon that go along with car loans, you might pay more than you should.

If you’re unsure or are curious to know more about the technical side of car loans, this article will provide you with car financing tips, loan requirements, and a breakdown of jargon you may encounter.

Car Loan Requirements

Getting a car loan can be difficult. You need to consider car prices, interest rates, down payments, lending standards, and more to seek financial assistance. Here are ways to help you get through this challenge.

1. Set aside a budget and make a down payment
   To get a car loan, you need to save enough money to make a sizeable down payment. You should save around 20% or more of the total cost of your ideal car—but it could be more or less depending on your lender.
   
   Paying a down payment lets the bank know you can repay your loan. If you cannot afford a large enough down payment, you will unlikely meet your monthly payments for the loan period (and potentially beyond).

2. Provide proof of steady income
   When you apply for a car loan, the bank will want to know that you have a steady source of income. You must show proof of your income, pay stubs, and bank statements. If you are self-employed, the bank will want tax returns or documents showing how much money you make yearly.
   
   This process helps bank determine your ability to repay them and the amount to lend you in the first place. They need to know they can trust you throughout the loan period. When you pay your loan on time, banks will more likely approve your other loan applications in the future.
   
   If you have been steadily employed for years and are making enough money to cover your monthly expenses and savings, you will likely not need a large loan. 
   
   However, suppose you have only been working for a short time or have little experience or education. In that case, the lender will probably want to see more evidence of your financial status before agreeing to lend you a loan.

3. Know your credit history
   Your credit history shows your behavior as a borrower and major purchases that require a loan. It shows potential lenders your ability to repay loans on time and whether they can expect you to do so in the future.
   
   If you have a good credit history, lenders will more likely trust you with a car loan because they know they will get their money back. Contrastingly, lenders may reject your car loan application if your credit history is terrible.
   

Car Loan Jargon

If you are a first-time car buyer, you might encounter some unfamiliar car loan terms. Here is some jargon you should know when seeking financial assistance to buy a car.

1. Sticker price
   Sticker price is the price that dealerships advertise for cars. It is not necessarily what you will pay—car dealerships often negotiate with buyers to get them to pay less than their advertised price.

2. Certified pre-owned (CPO)
   Certified pre-owned (CPO) indicates that a licensed mechanic has inspected the vehicle and deemed it in good condition. It also means that the dealership is willing to stand behind the car they sell.
   
   When you buy CPO, you can rest assured that the vehicle will not have any significant problems that could cost you money down the road.

3. Vehicle history report
   A vehicle history report details a car’s ownership and maintenance. It will tell you about any accidents or damages the vehicle received, when those car accidents happened, who was involved in them, and what caused them.
   
   It will also tell you about a car’s previous owners and their contact information, which could come in handy if you need help talking to them regarding repair issues.

4. Add-ons
   Car dealers typically offer add-ons and accessories when selling new cars. Add-ons are any extra features or services a dealer offers as part of the purchase of a vehicle. These features include extended warranties, rustproofing, or floor mats. They seem like valuable features for your car, but they are not that simple.
   
   It is important to know that add-ons are not a requirement and that you should never feel pressured into purchasing them if you are not interested or they do not fit your budget.
   
   When offered an add-on, consider the following: How much does it cost? Will it save me money in the long run? And do I need it?