A car is a big purchase for young adults and they should consider many factors before making a decision. One of the most important steps young consumers should understand is auto financing and how it is determined, according to Americans Well-informed on Auto Retailing Economics.
 
“An understanding of the vehicle financing process is especially important for those just starting out on their own,” AWARE spokesman Eric Hoffman said. “Responsible management of their monthly car payments will put them on the road towards building a positive credit history,” he added.
 
First young adults should order a credit report. Credit reports are one of the determining factors in interest rates, whether it be for an auto loan, mortgage or credit card. Young Americans should obtain a copy of their credit report to gauge their credit health and correct any errors.
 
Keeping the credit report in mind, consumers should create a budget. Setting a spending limit will help young adults determine what they can afford without going overboard. In addition to monthly payments, AWARE suggests factoring in vehicle-related costs such as insurance, gas, car maintenance, registration and taxes. Young adults should also shop around and visit a number of dealerships and financing institutions before making a final decision.
 
Consumers should do their homework on how auto financing is determined. Auto financing depends on a number of factors and understanding each one may help consumers get a better deal. Finance rates are primarily affected by the applicant’s credit score, the age and price of the vehicle, the down payment amount and the length of the payment contract.
 
Before agreeing to a purchase, consumers should understand terms, such as annual percentage rate, finance charge and lien. There are different types of financing and knowing what these terms mean and how they directly affect the auto contract will help avoid confusion or debt in the future. Some young adults who have not built up enough credit history to qualify for a loan may want to ask a parent to co-sign. This will allow the consumer to obtain the loan and build their credit. However, young adults should be aware that failing to make timely payments will not only affect their credit standing, but the credit of their co-signer as well.
 
The economic downturn negatively impacted auto sales. However, young adults may benefit from the slow recovery, because auto dealers are offering groundbreaking incentives and leasing options, according to MSNBC.
“There’s no-interest financing which can save you thousands of dollars, plus great rebates,” The Car Book 2010 author Jack Gillis told MSNBC. “And it’s much easier to negotiate the price of a new car because dealers are so desperate to sell.”
Many dealers, such as Toyota and Chrysler are offering zero-percent financing. Volvo is luring customers with $1000 cash back and zero-percent loans for 72 months package on some models. Those with a strong credit history may save thousands on no-interest loans and large rebates, reports MSNBC.
A young adult’s first vehicle is a big commitment, but a strong financial stepping-stone. Maintaining the vehicle and making timely payments will save money in both the short and long runs by reducing the costs of repairs and building a strong credit history.

Tags: credit history