Having no credit poses a lot of challenges when you need to buy a car. Even the traditional financial institutions don’t come to your rescue in such a situation. Does this mean you should give up on the idea of buying a car? Not really. Some alternatives can help you to make your dream come true. Keep reading further to learn about them.
Surprisingly, up to 100 million people in the U.S. either have no credit or so little credit that they don’t have a credit score. So, don’t think you are alone in this. The good news is that some lenders may be willing to help you, but be prepared to pay higher interest on your loan than someone with a long credit history and high credit scores.
Take a look at why lenders care for your credit history, where you can get a car loan with no credit, and the other things you should consider before applying.
Why does your credit history matter?
When you apply for a loan, your credit history helps lenders determine if you can responsibly repay it on time or not. Your credit history signifies the risk involved in approving your loan application.
When you don’t have credit, lenders may consider you as a high-risk borrower and increase the interest rate on your loan, meaning you’ll have to pay higher monthly payments and more overall interest.
Lenders generally run a credit check while going through your loan application. It is a good idea to review your credit reports before looking for loan options to buy a car, allowing you to check and take measures to remove negative items or discrepancies on them if there are any.
Also Read: How To Build Credit With No Credit History?
These are the best alternatives for an auto loan when you have no credit.
1. Credit unions.
Credit unions are nonprofit organizations that take a personal approach to lending. They are more willing to work with applicants who don’t have a robust credit profile yet. Some of them even offer credit builder loans designed to assist you in getting an auto loan while building your credit.
You should consider checking in with a local credit union to look at the financing options they have. Though, you need to be a member of a credit union before using its services.
2. Specialized lenders.
Some lenders are willing to work with all types of credit profiles. You won’t need an established credit history to apply for an auto loan, but you will need to prove that you have a steady income to pay money on time.
Also, you may have to choose a car dealership from within your lender’s network, limiting your options to buy a car from anywhere.
3. Special financing offers.
Special financing is available for those who are students or recent graduates. Some automakers and lenders have financing options designed to help students who have little or no credit history. These programs may use information like income, down payment options, and GPA to make lending decisions.
How to improve your chances of getting approved for a car loan?
- Get a co-signer.
Ask a family member or a friend to cosign on a loan with you. Their credit situation can increase your likelihood of getting approved and qualifying for a low-interest rate. Another benefit you get from this is risk-sharing. In case you’re unable to pay your loan, your co-signer will be liable to repay it for you.
- Make sure to secure a consistent paycheck.
You need to ensure that you have a reliable source of income to pay off your loan on time. If you fail to do so, your current lender and other lenders are unlikely to help you in the future.
- Make a down payment on your loan.
Some lenders may demand a down payment, specifically when taking out a loan under the special financing offer for students and recent graduates. Its upside is that you need to borrow less, decreasing the amount of loan and interest money.
- Check multiple lenders.
Shopping around helps in comparing different lenders and their offers. Even the eligibility requirements differ from one lender to another, giving you a chance to select the best loan terms and interest rates.
Focus on credit building.
Building credit is always a good idea before you decide to take out a loan to buy a car. Some financial institutions offer credit builder loans and secured credit cards designed to help people build their credit.
It is critical to check and make sure that your payments for these accounts get reported to the three major credit bureaus each month.
You can also consider becoming an authorized user on someone else’s credit card with good credit health. Be sure to check with your credit card company if they report the primary account holder’s activity to the credit bureaus in your name as well.
Look at your current situation to rationally decide if you should buy a car now or you should wait till you build your credit history.
A leading company like Cool Credit can simplify the process of building credit for you. The team of professionals at Cool Credit can take charge of auditing your credit report, disputing any negative remarks, and working to improve your credit for a low monthly fee.