First-time Car Buyer Programs: How They Work & How To Apply

The process of getting an auto loan may seem daunting, especially if you have little or no credit history. First-time car buyer programs exist to ease the path to car ownership. They are offered by lenders and automakers and are specifically designed to assist people in financing their first car.

What is a first-time car buyer program?

First-time car buyer programs make finding financing easier if you are buying your first car because lenders tend to have less stringent credit requirements than with traditional auto loans. Some don’t even require an established credit score. There may also be incentives like a lower interest rate after a certain period of on-time payments or vehicle rebates on the car’s purchase price.

Lenders use your credit score and credit history to determine your likelihood of repaying a loan. Although a first-time car buyer program may still work with you, you will likely see higher rates than you would with an established credit history. These programs may also offer a limited range of loan terms or restrict which vehicles you are eligible to buy. 

Where to find a first-time car buyer program

These programs are offered by lenders and can be found through online research or at dealerships.

• Automakers: Programs through dealerships and automakers may be easier to come by. Start by exploring dealerships in your area and the automaker’s website.
• Lenders: Traditional lenders, like banks and credit unions, may have special offers for those purchasing their first vehicle. These programs might not be advertised prominently, so check with your own bank first.

Which lenders offer a first-time car buyer loan?

Some lenders — for example, a local credit union in your area —  may offer a first-time car buyer loan, but it’s typically not an option. If you’re interested in this type of loan, you’ll likely need to consider special manufacturing financing offers instead of a bank or credit union.

First-time car buyer program requirements

Eligibility criteria may be less strict, but there are some basic requirements across most programs.

• Credit score: Unlike traditional auto loans, these programs are designed to assist people with limited or no credit history. But if you do have a healthy credit history, you may find a more competitive rate.
• Employment: Many programs request employment information to assure the lender you can afford the payments. This will likely include proof of income and the contact information of your employer.
• References: Some programs may request personal references for the dealership to reach out to. For example, Audi requests two personal references, one from a relative, with a phone number and address.

Bankrate tip

Some first-time car-buyer programs won’t approve you if you have poor credit. If you have missed payments or other credit issues, consider looking into bad credit auto loans instead.

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

Securing the best deal on an auto loan doesn’t have to be complicated. It starts with doing your research and preparing your finances to get approved for financing with favorable terms.

1. Research cars in advance

Start by researching what cars catch your eye and that you’d be most interested in driving. Note any features you want along with those that are non-negotiable, and don’t forget to check the reliability ratings of the vehicles on your shortlist.

First-time buyers can also benefit from learning how to get the best auto loan rate to be as informed as possible. It doesn’t have to be overwhelming, and knowing what to expect can give you peace of mind and help you navigate the process more seamlessly.

2. Create a budget

The biggest concern when buying a car should be the cost. Assess your spending plan to determine how much car you can afford without stretching your budget too thin. Experts recommend spending no more than 20 percent of your income — including the monthly payment and other ownership costs like maintenance, insurance and fuel — on a car.

Use an auto loan calculator to estimate monthly payments and total interest paid. Then, check resources like Edmunds and Kelley Blue Book to see what you can expect to pay for the vehicles you are interested in buying.

3. Save for a down payment

Once you know how much you can spend, start saving for a down payment that’s at least 20 percent of the vehicle’s total cost. A larger down payment improves your chances of a good interest rate, reduces your monthly payment and shrinks the interest you’ll pay over the loan’s course.

If you can’t afford this amount, aim for a down payment of at least 10 percent or whatever you can afford. Consider using Bankrate’s auto down payment calculator to find a figure that works for you.

4. Review your credit report and score

Your credit score is the most important factor lenders consider when determining your interest rate. To get a good deal, you will need a history of on-time payments and a solid credit score.

Again, if you haven’t had the chance to build your credit score and history, you could have luck with a first-time car buyer program. Also, remember that using in-house dealership financing to take advantage of these programs could mean a higher interest rate.

5. Shop more than one lender

Reading lender reviews is just as critical as comparing cars if you want a good deal. There are multiple types of lenders to choose from, including:

• Credit unions: If you have little or no credit history, you may be eligible for a first-time car buyer program with a local credit union auto loan. You’ll need to become a credit union member to apply for loans, so inquire about ways to join before moving forward.
• Big banks: Consumers with an existing relationship with a traditional bank may qualify for an auto loan. As a first-time buyer, you may face higher rates.
• Online lenders: Online lenders generally offer less strict eligibility requirements than traditional banks. This is good news if you lack credit history or a high score, but you can expect a higher interest rate to offset the risk of default posed to the lender.
• Loan marketplaces: These online platforms feature an extensive network of lenders. Submitting an application shares it with the network so you can view potential loan offers with lenders who could be a good match.
• Captive lenders: You can also secure financing through a captive lender, or the finance company belonging to the auto manufacturer. They often feature auto loan programs for currently enrolled students and recent college graduates.

Every lender has different rates and ways of calculating who gets what terms. Be sure to shop around and apply with multiple lenders. This allows you to see what you qualify for, how much you can spend and what you can expect to pay each month.

6. Apply for preapproval

Shopping around has an added benefit: It likely ends in a preapproved offer that lasts 30 to 60 days. When you receive preapproval for an auto loan, it gives you time to shop around for a ride, knowing you’ve locked in funding at a fixed rate.

Preapproval requires a hard credit check but gives you leverage when it’s time to negotiate the purchase price at the dealership. You may also be able to negotiate a better deal on in-house financing — if that’s the route you want to go — with a preapproval letter in hand.

7. Add a cosigner or co-borrower

If you don’t have stellar credit, a cosigner or co-borrower could help your chances of getting a good deal. The lender will consider both credit scores when deciding whether to finance your vehicle. So, the individual you select should have good or excellent credit and a steady source of verifiable income that meets the lender’s minimum threshold for approval.

A cosigner doesn’t have rights to the vehicle but will become responsible for the loan if you cannot make timely payments. However, a co-borrower shares ownership of the vehicle and equal responsibility for the loan with you.

Navigating the car dealership as a first-time buyer

Buying your first car involves more than just choosing a car and securing a loan. It’s also about effectively navigating the car dealership and understanding potential risks.

• Ask about additional fees: It’s always a good idea to ask about fees that could make repaying your loan more expensive. For example, some lenders charge a prepayment penalty if you pay off your loan early.
• Check credit requirements: Make sure you have a strong enough credit history for the first-time car buyer program you’re interested in.
• Seek advice: Speak to an older sibling, parent or someone else close to you with experience buying cars. You may wish to bring them to the dealership while you shop to provide advice and help you spot red flags.

And while it can be tempting to go for the shiny new model with all the latest features, remember that a more modest car can still be reliable and meet your needs. Lastly, don’t be afraid to negotiate the price of the car and always read the fine print before signing any contracts.

Bottom line

There are several enticing auto loan programs out there for first-time car buyers. By preparing your finances in advance, shopping around, getting preapproved and being patient throughout the process, you can boost your chances of getting the best deal on auto loan financing, even if it’s your first rodeo.