Buying your first car is probably one of the most exciting things in your life, but it can also be daunting. After spending days or weeks looking for your ideal vehicle, you also need to find a good auto financing deal. Obtaining an auto loan can be complicated if you’re a young car buyer with little or no credit history. However, it isn’t impossible. Check out this comprehensive guide on how to finance your first car with no credit.
Why Your Credit History Matters to Auto Lenders
When you apply for auto financing, the lender wants to know whether you can repay your loan on time before approving your application. Your credit history is one of the main factors lenders consider when determining the amount of risk you pose to them.
If you’ve never used credit or don’t have sufficient history of consistent, on-time payments, a lender is likely to regard you as a high-risk borrower. As a result, you might have a hard time securing the financing you need, especially if you want to borrow a large amount. Even if you manage to get your loan application approved, be prepared to pay a high interest rate, which can significantly drive up your overall cost of car ownership.
How to Get an Auto Loan With No Credit
While it’s more difficult to obtain financing without a credit history, you can do a number of things to increase your chances of getting your first auto loan approved, including:
Make a Large Down Payment
Making a large down payment shows you’ve worked hard to buy your first vehicle, meaning you’re truly committed to the purchase. If you’re unable to come up with a substantial down payment, most lenders won’t trust you with a car loan and the responsibilities that come with it.
The general rule of thumb is to make a 20% down payment for a new vehicle and 10% for a used one. If you have no credit rating, try to save up a down payment of 30% for a new car or 20% for a used car.
Gather Documentation
Other than your credit history, a lender will look at many other factors to see if you can afford to make your monthly loan payments and eventually repay your debt. You may be able to convince your lender that you aren’t a risky borrower by providing the following documents:
- A copy of your bank statement.
- Recurring bills such as phone and utility bills.
- Proof of employment, such as pay stubs.
It’s important to have at least these three types of documentation. If you have other documents that can serve as proof of income, submit them with your application, as well. The purpose of presenting these documents to the lender is to prove that you have a steady source of income and a good track record of making payments. The longer you’ve worked for a single employer, the more likely you are to get your loan approved. It shows the lender you’re capable of holding a job for a long time.
In addition, it might be worthwhile to try using an alternative credit-scoring model such as FICO XD or Experian Boost. With this credit-scoring method, you’ll be assigned an alternative credit score based on your online checking account records, including your rent and utility payments. If you’ve been responsible with your bills, you’ll most likely receive a good score, which can help you impress a lender. However, you must meet certain requirements if you plan to use Experian Boost, including signing up for online banking and choosing a lender that uses Experian data for underwriting.
Seek Help From Family and Friends
You might also want to consider asking for help from a family member, relative, or friend. If they can lend you the full amount you need to purchase your first vehicle, it’ll save you a lot of trouble and probably a substantial amount of money. However, first lay out a solid repayment plan, and work with a legal advisor to prevent the situation from getting messy in the future. You need to at least set an interest rate and a time frame for repayment, create an amortization schedule, and try your best to make payments on time.
If your family or friends cannot give you a loan, you can ask them if they’re willing to become a co-signer. A co-signer is someone who allows you to use their good credit history to obtain an auto loan. This individual has to sign a promissory note that obligates them to assume liability for your debt. You’ll still receive monthly bills from the lender, but you can hurt your co-signer’s credit score with a missed or late payment. Also, your family member or friend will be fully responsible for your car loan if you default.
Consider Dealer Financing
Auto dealerships that have been in business for a long time might be able to help you secure auto financing with no credit because they’ve established solid relationships with many lenders over the years. Instead of approaching banks and credit unions yourself and getting denied over and over again, you can save time and effort by going to a dealership.
An auto dealership with a well-connected finance center can make special arrangements with lenders to get your loan approved. Nonetheless, your chances of being accepted still largely depend on your financial situation, job history, and other factors. Then again, a dealership is more willing to go the extra mile to help you secure financing as a way to provide a great overall car shopping experience.
Secure a Low-Credit Auto Loan at Rydell Outlet in Grand Forks
Getting auto financing with no credit is usually a one-time problem, because you’ll establish a credit history if you succeed in securing that first car loan. If you’re having trouble finding a lender in Grand Forks, North Dakota, that offers auto loans with no credit, get in touch with the finance experts at Rydell Outlet Center. Contact us today to find out about our financing solutions.
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