First Time Car Buyer No Credit Financing
Are you buying a car for the first time and are worried that you don’t have enough credit to get you approved for an auto loan? Put your fears aside because you could be having more credit than you imagine. A thin line of credit doesn’t translate to zero credit. Besides, it may stand between you and the vehicle loan if you are dealing with the right creditor. As a first time auto buyer, you might be shocked that your FICO rating probably isn’t zero.
Customers just beginning their journey in the world of credit usually have a low to a middle range credit rating of the FICO model, running between 300 and 850. A lot of first time car buyer no credit check dealerships, are looking for your business. Even though purchasing a vehicle with no credit can be challenging, it is not an impossible feat, as you are about to discover below.
What is First Time Car Buyer No Credit Financing
It’s always possible to buy a vehicle at age 16 or 17. However, you must be at least 18 years to apply for a car loan and finance an automobile. After turning 18, you cease being a minor and can take on debts, like auto financing. At this time, your credit report may not have any payment history, resulting in zero or low credit.
Also, you may have a stable job, an excellent record of timely bill payments. But you won’t necessarily be eligible for a car loan if you don’t have a credit score or credit history. Depending on the financing institution, buying a vehicle with no credit can be anywhere between hard and impossible.
Despite your reason for lacking credit, you are not alone. As many as 100 million U.S. citizens have no credit or very low ratings that don’t count as a credit score.
The good part is that securing the auto loan and paying all your bills on time will build your credit. It is not as difficult as improving your score if you start with poor credit. Even so, getting that first loan for your car may seem like looking up a tall mountain from its foot. But you don’t have to despair. We’ll be sharing further below the six surefire first time car buyer no credit tips.
In the meantime, keep reading to understand the thin line separating no-credit auto buyers like you and bad-credit borrowers.
What’s The Difference Between No Credit and Bad Credit Car Buyers
Before giving you our best first time car buyer no credit tips, it is essential to know the difference between bad-credit and no-credit consumers. Having no credit doesn’t make you a car buyer with bad credit. Instead, it means that lenders don’t have a proper way to predict your probability of honoring the terms in a financing arrangement. It is not the same thing having bad credit, implying you have a credit history showing you made severe mistakes.
Note that it will be harder to raise your rating to the acceptable range if you begin with bad credit. On the other hand, a zero-credit customer can find great auto deals through a first time car buyer program near me. Furthermore, a first time car buyer interest rate is never as high as that of a client with a tarnished credit report.
To help you get the concept better, let’s look at the composition of credit history. Credit bureaus use five factors in your credit report to calculate your rating, with each feature adding a percentage to your overall score. Lenders usually check both your credit score and reports when you apply for a loan.
In this way, they can differentiate a borrower with low ratings for lack of payment history from one with a low score because of late and defaulted payments. That’s why we recommend working with a reliable, first time car buyer no credit check lender.
Now that you can tell a bad-credit customer from a consumer with no credit let’s look at the basic qualifications for an auto loan.
Most Important Qualifications For A Vehicle Loan
Purchasing and financing your first car can be both exciting and stressful. On top of the requirement to be 18 years or older to sign a legal agreement, you must meet the basic prerequisites of a lender. These requirements include two things that could disqualify first-time auto buyers:
Credit History
As an eighteen-year-old, you probably have low to no credit history. It could be a problem when looking for auto financing options since most auto lenders heavily emphasize your credit reports and FICO score. It’s easier to get approved for a car loan with a subprime lender instead of a customary one, such as a bank or credit union if you are struggling with limited or no credit history.
Income Levels
Apart from the credit, lenders also underscore your income. For the majority of subprime, you can expect them to have a minimum pre-tax salary requirement ranging from $1,500 to $2,000. In addition, a steady income is vital to these lenders. So, they might ask you to provide up to three years’ employment history, with six months being at your current workplace.
If you have less than stellar credit and don’t satisfy the income qualification, but you have a close relative, spouse, or friend, you may not be entirely out of the car financing market. Having a co-signer or co-borrower is one of the surest ways to get financed even if you do not meet the minimum criteria.
You’ll get to take advantage of their strong credit along with their salary and yours to make the grade for an auto loan, and start growing your positive credit history. Other first time buyer car loans no cosigner options are also available. Here are six trustworthy first-time car buyer no credit tips:
Options To Consider When Purchasing A Vehicle For The First Time With No Credit
If you are looking to buy your first vehicle, plenty of questions might come up. But most likely, one of the most significant ones is about finding a first time car buyer program near me with the best interest rates possible. You will find many choices out there, and the options could leave you in need of guidance to traverse them all. Although a one-fits-all solution doesn’t exist, learning some of the tips below can make the entire process more manageable, and eventually leave you happy that you secured the best possible rates on your first auto loan.
- Look For A Co-Signer
- Leverage Alternative Credit Info
- Tapping In-House Dealer Financing
- Apply Through Credit Unions and Community Banks
- Checking Marketplace Loans
- Using Your Retirement Account
Now let us see how each of these options can help you buy your first car without credit:
1. Getting A Co-Borrower
Get into a car dealership or bank with no credit, and they might ask you to bring a co-signer.
With an auto loan, a co-borrower lets you use their excellent credit history. Besides, they promise to make the payments if you are unable to do it. Note that most lenders are unlikely to mention crucial information for the co-signer, such as:
- They are entirely responsible for your vehicle loan if you fail to pay.
- Any missed or delayed payments will reflect on your co-borrower credit history, bringing down their overall ratings.
- Your net loan amount will count as the co-signer debt each time they apply for credit cards or loans.
Some card issuers may increase their rates or censure their credit lines due to the risks associated with the new loan. This might make it more challenging or costlier for the cosigner to open a new line of credit down the road.
2. Leverage Alternate Credit Data
Being a first-time car buyer with no credit record also means that you have no mortgage or credit card. Yet, you may have a cell phone, rent payment, checking account, or utility bill.
Some credit recording models, such as FICO XD, will use these details, usually unconventional or substitute credit data, as they are unused in conventional credit scoring formulas. If you have been paying bills responsibly, they might show your ability to keep up with regular, timely auto payments.
But there’s also a catch if not pitfalls. There is no tangible evidence of auto financing companies using different credit rating systems widely. Another possibility, the Experian Boost, is not a nontraditional scoring formula, but an avenue to potentially improve your current Experian score through alternative data. And on the bright side, it is the borrower, not the lender, who elects whether to include it.
You are probably wondering, ‘how does the Experian Boost work?’ Well, you must first register for the program with Experian. This means letting the company access records for your online checking account. It scrutinizes the records before awarding you credit for consistent, timely payments while ignoring negative data like late payments.
Scores can increase to averagely thirteen points among customers who record credit improvement. And that’s not all. Clients also get to stop the service any time they want. The drawback is that you must get a lender who uses Experian data to underwrite since each lender has a preferred bureau. Plus, it means signing up for online banking and sharing your banking information with another entity, compromising your privacy.
3. Tapping In-House Dealer Financing
You’ve seen the ads, ‘No credit, bankruptcy, bad credit, no down payment – no problem.’ So, is it possible for a consumer with low or no credit to get approved for an auto loan at a conventional, brand-designated car dealership? Well, it depends on the auto dealer.
If you are dealing with a mainstream brand dealership with a solid reputation allied to a leading carmaker, it will be wise to call the finance manager and iron out some of the requirements.
- Can the car lot truly lend a buyer who doesn’t have credit, which is not anywhere close to having bad credit?
- If yes, what are their financing requirements? Will they need a co-signer? Employment history and payslip? Are their no-credit financing programs attractive for all the vehicles on the lot or only a few models?
- What percentage of the MSRP or lease value would you have to deposit? And what range of annual percentage rates would you expect?
A word of warning, though. Fight shy of unwanted add-ons, such as loan insurance and life insurance. It also pays to steer clear of incomplete contracts, lacking the vehicle’s interest rates and loans that might outlast the might endure after the car’s useful life.
4. Apply Through Credit Unions and Community Banks
If you are struggling to find first time car buyer no credit dealers among the reputable name brand retailers consider getting approved by credit unions and community banks. A good number of small, independent financial institutions have a more personalized perspective to lending, although others use almost a similar approach to the big banks’.
The difficulty for auto buyers is to get an accurate picture of behind the scenes happenings. One trick: search for facilities with designated programs for first-time vehicle buyers. Lenders design these programs for customers with thin or no credit.
Besides, these financing institutions may also employ what professionals refer to as ‘manual underwriting.’ It explains when the lender reviews your financial histories physically, by hand, instead of running the numbers through an automated system.
Another advantage is you can enjoy special attention and support. Apply for your first auto loan through a credit union or smaller bank with the designation of CDFI or Community Development Financial Institution. The lenders focus their investments in regions and communities in need of an economic boost.
When looking for a first time car buyer program near me, we recommend finding someone out there in your community willing to assist customers like you. Note that if you find the right lender, they will usually look at:
- Your reasons for having no credit
- The stability of your employment
- Your history for paying monthly bills
- The pay stubs
- Your ability to keep a job
5. Checking Marketplace Loans
Nowadays, you’ll find a market for almost everything you can imagine, including loans. So, marketplace auto loans are merely a deviation of that idea.
How do marketplace loans work? We wouldn’t be discussing these loans today without the input of marketplace loan brokers. This broker will get your financial information plus the amount and term of the loan you need, and shop the profile to multiple investors.
The investor can choose to provide the loan or not. They may also decide to give you a new term, such as different payment terms or less money.
There is something you must know if you are a first time car buyer no credit loan. Note that not all brokers deal with borrowers who have no credit. Besides, not every broker handles car loans, although most help with personal loans, unsecured funds that you can use for a vehicle.
Research brokers keenly, if you are going to use marketplace auto loans. Also, keep in mind that you are sharing sensitive, personal data. It is best to stick with renowned brands that have an impeccable history of performance and achievements. Find out how they share a borrower profile plus what ensues with it after concluding the loan process. In addition, ask how much they can grant a zero-credit client and the range of interest rates.
6. Using Your Retirement Account
If you have no credit but have been putting away funds in a retirement account, you can borrow from that to secure your vehicle. However, we implore you to read the fine print judiciously, because while some of these accounts simplify this process, others have hefty levies and charges.
With a 401(K) retirement account, for example, your company’s package might limit the loan size and why you are borrowing. Moreover, it will determine the interest rate.
If you opt-out of the deal, you may have as little as sixty to ninety days, depending on the company, to clear the loan or risk a ten percent fine.
A Roth IRA allows you to withdraw any amount of the money you put down at any time, no matter the reason. But you cannot withdraw the interest. Still, note that this withdrawal could see you losing years of investment. And unfortunately, your decades’ of interest are the magic behind growing the funds in your retirement account.
Helpful Hints For First Time Car Buyers With No Credit
Sadly, not every eighteen year old has alternative credit data, a retirement account with enough funds, or someone ready to co-sign on an auto loan. Where can young, first-time car buyers without credit go if they can’t meet the criteria for any of the six options above? There are other avenues to improve your odds for approval without using a co-borrower or the remaining five alternatives.
- Make A Large Initial Payment – You don’t have to put money down when working with a first-time car buyer no credit investor like a subprime lender. But making a bigger down payment can go a long way to increase your chances of getting approved. If possible, try depositing around twenty percent of the car’s selling price, further set you up for a more positive loan outcome.
- Establish A Credit Line And Build It – We recommend that you take the time to establish and grow credit if you do not need an auto loan right away. Taking out a loan that can build credit, becoming an accredited user on another person’s credit card, or applying for a credit card are ideal places to start. You should see your ratings increasing with time, provided you are keeping up with monthly bills and making regular payments.
- First Time Car Buyer Programs – Some creditors have first-time vehicle buyer programs, which are particularly good for young consumers without a co-borrower. Like subprime car loans, these programs will ask for a copy of your employee’s contract or income proof and are likely to charge slightly higher than average interest rates.
- Buy Here Pay Here Used Cars Dealerships: If programs for first-time car buyers or subprime lending don’t fit and you want a vehicle right now, you can use buy-here-pay-here auto retailers. BHPH car lots have in-house vehicle financing. They will use your salary to approve you for a loan without running credit checks. Even though you get the green light for auto financing, unless the dealership confirms, they won’t report your timely payments to the credit bureaus. This could derail efforts to improve your credit score.
Effective Ways To Prepare For First Time Car Buyer No Credit Loans
If you are buying a car for the first time and do not have much show for your credit history, you may find it hard to qualify for an auto loan. Depending on the creditor, you might be required to have a co-signer or other credit data to be eligible. What if you don’t meet all their requirements?
Here’s how you can prepare to get approved for a car loan on your first vehicle with no credit.
1. Know Your Creditworthiness
The fact that your credit report has no history of payments doesn’t necessarily reduce your ratings to zero. Having no credit is still better than being a bad credit buyer. If some investors can lend a bad credit borrower, you can find those willing to work with you, despite having no credit records. By knowing how your credit report looks like, it will help you choose a lender that focuses on consumers with similar ratings.
2. Define Your Budget
The next important step in purchasing your first vehicle with no credit is to create a budget. Doing so will help you narrow your choices to vehicles inside your price range and avoid falling in love with a model that will break the bank.
If you are setting a budget for an automobile at a first-time car buyer no credit check dealership, it’s best to start by summing up all your monthly expenses and income. Having an accurate concept of your income and expenses will allow you to identify areas where you could reduce spending. In this way, you may end up with more funds for your monthly auto payment.
We recommend limiting your car installments below ten percent of the pay you take home every month. But your monthly income is not the only factor to consider when budgeting for an auto loan. You will also want to take into account the ongoing costs of car ownership, like repairs and maintenance, insurance, and gas.
It is also vital to consider loan terms. Terms on a car loan often range between thirty-six and eighty-four months. Longer loan terms result in smaller monthly premiums while increasing the interest you’ll pay for the long run. By picking a cheaper vehicle and depositing a larger down payment, you can go for a shorter loan term with manageable payments.
3. Do Your Homework
After determining your budget, research to see which cars in your price range match your needs. Research on the internet at local dealers’ sites or automotive blogs like Kelley Blue Book and J.D. Power, to give you an accurate idea of the amount you are likely to pay.
You’ll certainly be tempted by great deals on auto leases. Most drivers prefer owing their vehicle downright, but renting has tons of attractive advantages, including the lower cost to lease a car than buying. After all, you’ll drive a brand-new automobile, often for a lower initial payment and monthly installments versus buying.
4. Explore Your Purchasing and Financing Alternatives
Once you whittle down your dream vehicle list, start thinking of how you will finance its purchase. You will need a car loan for that unless you put aside enough funds to buy the vehicle outright using cash. 84.6 percent and 54.6 percent of new and used cars, respectively, were financed during the last quarter of 2019, according to a State of the Automotive Finance Market report by Experian. You can secure auto financing through third parties like credit unions or banks or with in-house-lending car dealerships.
5. Raise Your Credit Score
We already told you the importance of knowing your credit rating prior to seeking a loan for your purchase. If your credit score isn’t in the exceptional range and you are not in dire need of the automotive, consider rescheduling the acquisition. Meanwhile, you can try to raise your credit rating and potentially get access to lower-interest loans, saving you money.
6. Start Saving For An Initial Payment
How big does the deposit on your dream vehicle need to be? Similar to purchasing a home, many lenders prefer an initial payment above twenty percent of the automotive’s price. But a ten percent upfront payment is usually sufficient if you are getting a used vehicle from a dealer.
Most carmakers, automotive sites, and dealerships have online payment calculators that you can use to get the most reasonable deposit amount for you. By feeding different loan terms and vehicle prices, you can assess how various deposit amount might impact your ultimate paid interest and monthly fees.
7. Consider Purchasing A Used Car
If your heart is set on a brand new vehicle, you’re likely to have second thoughts once you learn how much it’s going to cost you. The average monthly premium for a new auto can be hundreds of dollars more than the average payment per month on a used car.
Purchasing a used vehicle is usually a better alternative for a first time car buyer no credit check required. Cars with less than 5 years on the road often have many of the same technological and safety features on newer models, though for much less. You can also search for car lots selling two or three-year-old models completing their leases.
8. Get An Inspection Report For The Vehicle
Whether you are purchasing a used vehicle from a dealer or from persons you know, it’s always a good idea that you first get a certified mechanic to inspect it. The process is known as a pre-purchase inspection in the automotive world, and most auto repair facilities offer it. While this service may cost you hundreds of dollars out-of-pocket, it is a worthy expense if it saves you from getting a car with significant problems under the hood.
You should also subject a CPO vehicle to an independent inspection before buying it. Note that most CPO inspections concentrate on major systems and noticeable issues. A non-affiliated mechanic is likely to notice smaller problems, below par repairs, and possible future issues.
Bottom Line
There are several things you can do to improve your eligibility for an auto loan as a first-time car buyer. Knowing your credit score and the content on your credit reports is the first crucial step to getting approved for an auto loan with no credit. When you are aware of your credit report, you will have a reference point for establishing and building credit. And a first time car buyer no credit lender is an excellent way to do that.
Everyone is eligible for a free credit report every week from any of the three major credit bureaus, because of the coronavirus pandemic. Hurry and find out what’s on your credit reports with Equifax, TransUnion, or Experian, before everything goes back to the usual one report per bureau, annually. Look for first time buyers no credit dealers, such as subprime and buy here pay here used cars dealerships, and negotiate the price of your auto loan, considering your no credit situation.
Asking a co-borrower with excellent credit to help is another way to improve your odds of financing a car. The co-signer will lend you their stellar credit rating to give you a better chance of qualifying for a vehicle loan. It’s crucial that the co-signer qualifies for the credit line since they agree to continue with payments if you default.
Having a more substantial deposit amount can also increase your approval chances. A down payment that is above the 20% car price minimum can be beneficial. By paying more money upfront, you are borrowing less. As a result, you can save more money over your loan term as it brings down the interest rates. Besides, a larger down payment lowers your monthly installment, sometimes making you eligible for more attractive loan terms and opening up a more extensive selection of car choices. Applying for first-time car buyer programs at local dealerships is an easy way to finance your vehicle without meeting all the basic loan requirements.
Frequently Asked Questions (FAQ)
How can I buy a car with no credit?
There are several ways to purchase a vehicle with no credit. You could get an excellent credit consumer to co-sign the loan. Also, putting down more money than the average down payment on the car you are buying is likely to sway the dealer your way. Most subprime lenders and BHPH dealers finance car purchases for customers with zero credit. First-time vehicle buyer programs are also meant for customers with no credit like you. The best method to finance an automotive with no credit will depend on your existing conditions.
Can I get a loan if I have no credit?
Yes. Subprime lenders, community banks, marketplace loans, and credit unions are perfect places for no-credit borrowers to apply for a loan. However, your loan size will depend on other qualifications, such as income levels and using a co-signer. Another way to secure a loan with no credit is to wait and grow your credit to the desirable range before taking out the loan.
Is no credit worse than bad credit?
No. On the contrary, bad credit is worse than no credit. The former applies when you have or had a credit or loan and ended with a bad payment record due to not paying according to the agreement. On the other hand, no credit is when you’ve never borrowed a credit line or loan from a lender, giving you no credit record. It’s very easy for a no-credit consumer to establish and build their credit than it is for a bad-credit customer to improve their ratings. This is because lenders consider someone with bad credit as a high-risk borrower.