If you are looking to invest in a new vehicle, but your credit score is poor, or you don’t have any credit at all, all is not lost. There are steps you can take to get an advantage on this situation when applying for loans. Lenders do offer loans to people without credit, but getting one may not be guaranteed. Factors include the lender’s flexibility, what you can afford for a down payment, and which vehicle you are looking to purchase. Let’s look at a few tips for people who need no credit car loans.
Getting Pre-Approved
If you have no credit or even poor credit, a good first step is to try and get pre-approved for a loan before even going to the dealership. This will arm you with important information about loan rates which you can compare with what the dealer may offer, giving you something to bargain with when negotiating a price.
If you have an existing relationship with a bank or credit union, this already gives you a leg up and you should start investigating options there first. A good way to begin is by making an appointment to speak in person with your bank’s loan officer, who can go over all the options with you. You will want to sell yourself a bit here. The bank will want to see evidence of your finances, such as pay stubs and bank account records. If you have credit reports, definitely bring those as well. The bank will want to know as much about your credit profile as a potential lender would. If you don’t have this information, don’t sweat it. You can check your credit score online using various online services and even request a free report.
If it turns out you are unable to get a loan from your bank or credit union, there are other options to try. You may be able to locate no credit auto loans online, but do plenty of research to ensure that the lender is reputable and trustworthy.
Dealing with the dealer
Now comes the stressful part for most buyers, bad credit or not – negotiating with the dealer on a final price. If you know you are already approved for a loan before walking in the door, that gives you the freedom to focus on comparing the loan rate you have against the dealer’s. Be aware that the dealer could end up beating the offer you get from your bank or credit union, but you’ll always have that existing approval as a backup.
Negotiating with the dealer on the vehicle price is always a tricky proposition. Buyers don’t want to give in to the dealer so much that they end up not getting the deal they want. Part of the negotiating process is making sure that the dealer’s financing is better than that of the lender. If it isn’t, stick with the approval you walked in with.
If possible, having a sizable down payment or trade-in will also definitely help with getting the price you want. Both will provide substantial benefit toward reducing the amount of money you will need to borrow, therefore keeping your debt as low as possible. It is generally recommended that buyers put down at least 10%, but preferably more if you can swing it. Whatever you can do up front will help secure your no credit car loans, through a dealer, online or with a lender.
Finding the right vehicle, not the perfect vehicle
There are a staggering number of vehicles out there, which can be overwhelming for someone with credit problems or for someone who is new to the car buying process. The car you can afford may not necessarily be the car of your dreams. Be sure the vehicle you are looking to purchase fits with what you have to spend and will be reliable. The act of making regular loan payments that are on time will build your credit in addition to paying down your debt. Be sure to not go for a loan that will require payments which may be more than you can afford. Also, be wary of seeking loans that are spread out over more than four years. While longer loan terms will reduce your monthly payments, that savings will be eaten up in the long run by more interest paid out over the life of the loan.
Online services like Kelley Blue Book, Cars.com, and Edmunds can help you match up a vehicle with your current budget. And when you do meet with the dealer, try to resist their efforts to sell you add-ons and additional features that you might not necessarily need.
Interest rates for no-credit buyers
Unfortunately for buyers with little to no credit history, the reality is that interest rates for auto loans are going to be on the high side. Without a credit score, it is difficult for lenders to determine how much of a risk it will be to give you a loan. No-credit buyers are seen by the lender as a higher risk, which will result in the no credit car loans having a higher interest rate.
That’s the downside. The upside is that as you make your loan payments and especially if you make them on time, you will establish a pattern as someone who can reliably pay back money. In time this can improve your interest rate, which in turn will lead to a better deal if you choose to refinance your car loan later on down the road.
Avoid going with a co-signer
One option for no-credit buyers and getting a loan is to go with a co-signer. This is a process of checking and using someone else’s credit history, using their score in trying to qualify for a loan. On the outside, this may seem like a good idea as you might end up with a lower interest rate on the loan, but if you do it on your own and go with a higher interest rate, it will give you a greater opportunity to build your credit.
Another disadvantage to using a co-signer is that their credit will then be tied to yours. This could impact their credit negatively if you are late in your loan payments for example. It is far more advantageous to finance the car yourself in order to build your credit. In the future, when you go to apply for a loan for something else, your credit will be established and it will be easier to get approved as the lender will see you as less of a risk. If going with a co-signer is unavoidable, make sure it’s a last resort, and make sure that person is a relative or other trusted individual.
Getting stuck
If you find yourself in a position where you are unable to make a loan payment for some reason, the best thing to do is to contact your lender. Since they are lending you the money, it’s really in their best interest to keep you on as a customer in order to get a return on their investment. They will work with you to either extend the length of the loan, which would lower your payments, or allow you to make lower payments for a short period of time until you can get back on your feet.
The drawback to both of those approaches, as mentioned earlier, is the accrual or more interest over the life of the loan. However, this is preferable to the alternative of doing nothing, which will negate the goal of trying to build credit and possibly result in the loss of your vehicle. Be prepared to honestly explain your case to the lender and show them you are sincere in wanting to make your arrangement work, and they will work with you to find a solution.
Conclusion
Building good credit can help make a big difference in your personal financial security, peace of mind, and independence, in addition to helping you find your next vehicle. If you find yourself not accepted for a loan at first, keep persevering, maybe try different approaches, such as online dealers. With a bit of work, thorough research, and smart shopping, buyers with little or no credit can find no credit car loans which works for them.
