The first question to ask is, “Am I in a position to create an additional monthly expense?” Buying a car is a nice luxury, but many Gen Z’ers are not in a financial position to wire $35,000 to a dealership’s bank account.

When in the market for a vehicle, figure out an affordable monthly car payment, not one created to leave you broke. Financial advisors recommend spending anywhere between 10-20% of take-home pay on car payments, including car insurance, each month. More realistic percentages fall between 15-18 %. You decide what’s best for your budget.

Whether in the market to purchase a new or used vehicle, if not paying with cash, assessing credit is the first step in getting the ball rolling. When granting loans to customers, banks examine multiple factors including credit score, income, debt-to-income ratio, payment histories, and length of time at residence and employer. Banks want to determine the loan applicant’s stability and ability to repay the car loan.

Even if customers meet those requirements, it does not guarantee they will be extended a loan. For example, if a buyer wants to purchase a $50,000 car and earns $2,000 a month, with no sizeable down payment or equity in a trade-in vehicle, the banks will likely deny the car loan due to the modest income.

It is the only way to determine if a customer qualifies to purchase a vehicle. It is never ideal to walk into a dealership not knowing your credit score. Most banking and credit union apps offer credit scores as a customer convenience, and they can also be pulled from Equifax, Experian, and TransUnion – the most reliable sources. Walking into a dealership blindly can put customers at a disadvantage considering a credit score is perhaps the most crucial component of the car buying process.

While poor credit customers can get approved for car loans, it generally results in higher bank fees and interest rates, which can balloon the vehicle’s overall cost. When not getting approved, a customer’s credit score can potentially drop due to submission to multiple banks, which can further decrease the chance of getting a car loan approval. Although each dealer has its own banks it collaborates with, dealership hopping and crossing fingers for a better outcome is insanity. Don’t jump into a bad situation just because you did not take the time to research options.

Interest rates are based on a person’s credit score and credit history. A person with no credit, minimal, or poor credit will pay a higher interest rate than a person with well established good-to-excellent credit. Each individual is different and banks view each situation differently, so never assume you qualify for the best rates you see friends or relatives receive. Higher interest rates do translate to higher monthly payments. While a cosigner, such as a family member or friend with good credit, can remedy that situation, it means asking for assistance. Another route to consider would be contacting your bank or credit union and applying for a car loan, which can then be used at the dealership. They just might offer competitive rates. At the very least it offers the opportunity to compare rates between the dealership and your bank or credit union.