The first-time borrower’s guide to financial independence

The first-time borrower’s guide to financial independence

Taking charge of your finances for the first time is both thrilling and challenging, kind of like learning to drive. At first, everything feels new: auto loans, credit cards, building your credit, etc. It’s easy to feel uncertain, but whether you’re planning your first big purchase or fine-tuning your budget, each step is a chance to grow your confidence.

Let’s dive into the key concepts every first-time borrower should know.

The basics of auto financing

Buying your first car is exciting. But paying for it? That’s where auto financing comes in. It lets you spread out the cost of a new or used vehicle — with interest — in monthly payments, so you can afford reliable transportation and build credit at the same time.

Key terms to know:

• Principal: The amount you borrow to buy the car.
• Interest: A charge you pay to the lender calculated as a percentage of the amount you borrow.
• Term Length: The time period (e.g., 36 to 72 months) over which you’ll repay the loan.

Your first auto financing agreement isn’t just about getting reliable transportation; it’s also an opportunity to work on your credit score. Making your payments on time, every time shows lenders you’re reliable and sets you up for better financial offers in the future. We discuss credit and auto financing further below.

Pro tip: Consider getting prequalified for financing. Many companies, including GM Financial, let you explore your options without affecting your credit score, helping you plan your budget more confidently.

What is credit, and why is it important?

At its simplest, credit is your ability to borrow money with a promise to pay it back. But it’s also so much more. It’s your financial handshake with lenders, landlords and even employers. A great credit history can lead to lower interest rates, easier approvals on rentals and better terms on future loans.

How to build credit responsibly

• Start small with a credit card or anything requiring a recurring payment, such as auto financing, and consistently make on-time payments.
• Keep your credit usage under 30% of your available limit.
• Set up Auto Pay or payment reminders to avoid missed payments.
• Regularly check your credit report for accuracy. Visit AnnualCreditReport.com for your free yearly report.

How credit cards work

A credit card lets you borrow money for purchases while giving you the flexibility to pay it back in installments. As you use your credit card responsibly, you build your credit history, showing lenders that you can handle financial commitments.

Many cards, like the GM Rewards™ Mastercard^® from Barclays, offer perks like cashback or travel points as a reward for choosing them. But remember to treat a credit card like a tool, not free money. Stick to manageable purchases you can pay in full each month to avoid interest charges.

Understand interest and fees

Every borrowing option comes with costs, which may include:

• Interest rates: Whether it’s auto financing, credit cards or personal loans, you’ll typically pay interest on the borrowed amount. Look for competitive rates and prioritize loans with terms that fit your budget.
• Fees: Auto loans or lease agreements may include expenses such as acquisition fees, disposition fees or late payment fees. Credit cards can have annual fees, foreign transaction fees or penalty charges for late payments.

Build smart habits by creating a budget that outlines your income, fixed expenses and savings goals. Many banking and digital wallet apps can help you track payments and spending, ensuring you stay organized.

Now that you understand the essentials of borrowing, you’re ready to take charge of your financial independence. Explore our financial resources and other finance tips for young adults for more tools and courses designed to boost your financial confidence and independence.

By Taylor Provost

GM Financial