March 24, 2017.
As a young person or simply someone who has not used credit in a while you may find yourself with no credit score to qualify you for a car loan. Most lenders use automatic underwriting that will not approve applicants with no credit history. Still, there are some lenders that accept applications from first time buyers. Here is some popular advice on how to secure a loan if you have no credit history.
First, be patient.There is no 24 hour solution to getting a fair loan when you have no credit history. If you are in need of an auto in the next week then you have already surrendered a valuable bargaining position, the ability to walk away. If you can give yourself 6 months or more to prepare to get a car loan then you will find yourself in a very strong position to get a loan at a good rate.
Be ready to pay more.Lenders that work with no score applicants typically charge a minimum interest rate of 10% and some go as high as 30%. You are very likely to hear that you can simply refinance as you create your credit history but be aware that many of these high interest loans are structured to make that difficult. You may also be given the option to spread the loan out over a larger amount of time which will also cost you more in the long run. This leads to our next piece of advice.
Don’t take the first offer right away.No credit score does not mean zero bargaining power. Rest assured that there is more than one lender that is willing to work with you, but it will be up to you to find them and negotiate with each to get the best loan possible.
Determine your budget and gather a sizable down payment.One of the best ways to show your commitment to repaying the loan will be to put down a sizable down payment. This is where patience comes into play. If you have a good budget and know how much you are able to pay for a car each month then put that money away for 6 months. At the end of that time you will have saved enough to put down 12% on a 4 year loan. The more you can put down the more options you will have among lenders.
Establish six months of good credit history.You can do this by getting a ‘credit builder loan’ from a local credit union or bank. These are small loans that are meant to build your credit profile. You can also get a credit card. It is typically easier to get a credit card with no credit history but be careful as they tend to carry high interest rates so paying them off every month is very important. As an option, you can apply for a secured credit card which is a credit card that requires a security deposit.