After spending several years enlisted in the military, one of the first things many veterans do upon leaving military service is buy their first vehicle. However, due to the instability of life in the military in regards to moving around and being newly separated from the military, there may be a few roadblocks in getting auto loans. Here's what you need to know.
Your Credit Score & Credit Report
If you were ever on deployment or were stationed far from home, you may have had a difficult time keeping up with payments to creditors, which could seriously affect your credit score. Also, many military members do not have the same ability to build credit as civilians do, especially when on overseas assignments and deployments, which means a lack of a credit history that can make your credit report look bad.
Fortunately, you can review your credit report through USAA. The tool allows you to enter different scenarios to see how your credit will be affected, such as opening a new credit card and paying off balances. That way, you'll know what to do to improve your credit before you head out to a dealership to buy a vehicle. You'll need to log-in to USAA to locate this tool.
What You Can Afford
Unless you already have a civilian job, you will likely find it difficult for a lender to give you an auto loan, even if you receive federal stipends from a military pension, VA disability, or to cover living expenses from the GI Bill. These monetary amounts are not included on your federal income tax documentation, which is typically used by auto loan lenders to verify income. Therefore, even though you may be able to afford loan payments with the federal stipends, the lender may disagree.
If you already do have a civilian job, you may want to wait several months before trying to get a loan for a vehicle. The reason for this is because lenders typically want to see stability in employment. Take that time to build a nice down payment for the vehicle, which can help reduce the costs of the monthly payments.
Also, keep in mind that your insurance premium will likely be higher since you haven't had insurance coverage for several years. Lapses in insurance coverage can cause increased insurance premiums. You can, however, start a vehicle insurance policy now without owning a vehicle. That way, by the time you are able to purchase a vehicle, the premiums may not be as high as they would have been without any prior insurance coverage at all.