Buying on Credit: The Borrower's Guide

People have been buying on credit for years starting locally at the General Store, but it wasn't until 1950 when the first universal credit card was created that credit and lending in general really got complicated. Credit can be tricky now days, but it tends to be a safer move financially than paying cash when buying a vehicle. With the right information and a bit of planning, buying a car through financing can be super simple without overpaying.

Credit Score

One of the biggest mistakes people make when buying a car is walking into the dealership office or their bank just as blind about their credit score as the people they are asking to give them money. You wouldn't eat a piece of gum off the street or hand your child to a stranger, so why wouldn't you be informed when making a huge financial decision? Check your credit score to know where you stand. Once a year, you can request a free credit report that includes reports from Equifax, Experian, and TransUnion which are the top three credit reporting agencies. Your credit score is what companies use to determine if they want to lend to you in the first place as well as what APR (annual percentage rate) they should charge on top of the overall loan. The better your credit score, the lower the APR, and the more options you get for financing.

Monthly Budget

Before you even think about purchasing a vehicle, you should be well aware of what monthly payments you can afford. Take a few minutes and write down all of your current bills, figure up how much you make each month as well, and subtract your total bills from your total income after taxes. Once you figure out how much extra income you have each month, be sure to stay as far below the total as you can when searching for a possible loan. You don't want to have $400 extra each month and be paying all $400 towards a loan. If something were to happen like needing a new set of tires or even just an oil change, you might not have the money to cover the extra expenses. Be careful not to place yourself in a bind, since making your payments on time every month increases your credit score, making you look better on paper to finance companies in the long run.

Overall Price

Worrying about the price of the car itself shouldn't be the only thought on your mind. When you buy a vehicle from a dealer, no matter if it's cash or financed, you have to pay taxes and other fees. This does help you slightly since you are paying these fees upfront at a dealership, but would end up paying the same fees when purchasing the tag if you were to buy a vehicle from an individual. These fees are usually paid using the down payment. For example, if your loan is for $10,000 and you have $2,000 for a down payment, it doesn't mean you can afford a $12,000 vehicle. Instead, search for a vehicle within the range of your total loan and negotiate a reasonable price with the dealership.


With this information in hand, you'll be ready to negotiate a deal that will make everyone happy, including you. At Prestman Auto, we strive to help you find the perfect vehicle for your budget and lifestyle. If you are searching for a vehicle, contact us today and let us help you get rolling.


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