Getting a Car Loan Without Credit History
Posted by Frank Gogol
There comes a time when we may all want to buy a car. We don’t all have the budget to be homeowners from the very beginning – but until we do, the chances are that we will want to buy a car first. But cars are very expensive – and not everyone has the money stashed away to buy one when they need to. Some car buyers take out a loan to pay off their new car, but to do that, you need a credit history in the U.S.
So, what happens when you have no credit whatsoever?
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Do You Need a Credit Card to Buy a Car
When you have a line of credit that is healthy enough, you may use the actual credit card to get the funds for your loan. However, bear in mind that a credit card may come with very high interest rates – so, you might end up having to pay as much as 1/3 of the value of the car only in interest. This is why people prefer loans instead of credit cards.
Technically speaking, if you can find a personal lender that will give you a car loan without a credit history at a good interest rate, then you don’t really need a credit card. This is because they will not need your credit card history to give you that loan.
6 Options to Explore Before Getting a Car Loan
So, you have decided that you want to get a car loan – but what can you do in order to improve your chances? Where can you get a loan so that you can finally have your dream car? Well, here are some tips that you might want to follow:
- Get a Co-signer
- Tap Alternative Credit Data
- Consider Dealer Financing
- Consider Community Banks and Credit Unions
- Use Marketplace Loans
- Tap Your Retirement Account
Each of these options is discussed in more detail below.
Get A Co-signer
If you walk into a bank or in the office of a lender by yourself, with no credit history and no guarantor to vouch for the fact that you are actually the kind that pays their debts, there is a very good chance that you will end up with a big “no” in your face and the doors (figuratively) shut in front of you.
However, if you walk in with a co-signer you’ll see things changing. When you have a co-signer, you will be able to practically “borrow” from their credit history, making you seem like you are more reliable. Also, the lender will see them as a scapegoat in case you decide that paying loans is just not your style.
However, if you decide to get a co-signer, you need to be very careful – as your actions will affect them in the long run as well. For instance, if you default on your loan, they will be responsible for making the payments for you. Plus, whenever you make a late payment or miss one altogether, this will go permanently on their credit score – not yours.
For this reason, if you do decide to get a co-signer, make sure that you have the funds to make the necessary car payments whenever they are due.
Tap Alternative Credit Data
So, you don’t have a credit card, nor do you have a mortgage – which means you don’t actually have anything to help you build your credit history. However, you still have your checking account, your utility bill, your cell phone, and your rent.
When the traditional proof is not available, lenders can make use of the non-traditional ones to demonstrate your ability to make your payments on time. They just have to use credit scoring formulas, such as the FICO score XD.
The bad news is that not every lender will use this kind of alternative credit score model – which is why you might have to do some research before locking into a certain lender. In some cases, you might want to move past car loans – and move onto personal loans. These tend to be more flexible, and the interest rates are also generally more convenient.
Consider Dealer Financing
You’ve likely seen the advertisements everywhere: “no credit – no problem.” So, if you are a buyer that has bad or barely any credit to show, can you still get a loan from your average name-brand car dealer? Well, that mostly depends on the dealer.
If it’s a dealership with a good name brand and a good reputation that has links with a big car marketer, it might be in your interest to make a couple of calls to the financing manager and ask for a few details on the loan.
But can they work with someone that has no credit whatsoever? And if so, what would they need from you to give you this loan? It may be your job history, or maybe a co-signer – but if you can give them what they ask of you, you may be able to strike a good deal. The right dealer might also hook you up with some nice car insurance.
Consider Community Banks and Credit Unions
Credit unions or small community banks may be more lenient in giving you a loan when the big banks won’t. The secret here is to know where to look. For instance, you might want to look into lenders that have programs for first-time buyers. These were actually designed for people that have little to no credit.
Since they’ll be looking past your credit score, they may be interested in other factors: job stability, pay stubs, monthly utility payments – and the reason why you have no credit whatsoever at this point. If it’s something they find acceptable, you may be able to get a loan.
Nowadays, you can find a market for everything – and this includes loans. In this case, you will be working with a broker – someone that will analyze your financial data and present your terms to potential sponsors. They will decide whether they will grant you the loan or not, based on the data they have received from the broker.
Tapping Your Retirement Account
If you really have no credit but you have been putting away money into a retirement account, you might be able to tap into that account and borrow some money so that you may buy a car. It’s not something that you want to do when you think about the future – but if you manage to put it back as you promised yourself, then no harm should be done. And no one will be asking you questions about your credit history, job – or anything.
However, you may want to read the fine print as carefully as you can before proceeding. This is because while some retirement accounts may allow you to borrow without any costs involved, others may have penalties and fees.
Plus, depending on how much you have put aside, there may be a limit to how much you can borrow – as it happens with a 401(k) retirement plan. This is why you may want to ensure that the sum you get can cover the amount you need from the car.
Buy a Car with No Credit
When you have no credit, it might be rather difficult to get your hands on a loan – particularly when no one knows enough about you to give you the money. Are you trustworthy enough to make monthly payments? Without visible credit, they won’t be able to know. However, hope is not lost – even in this scenario.
How to Get a Car with No Credit or Cosigner
To get a car without a co-signer and no credit, you will have to look past traditional banks – and give a closer look into alternative lenders. Big banks are unlikely to give a loan without a good credit history – or at least a co-signer.
Other lenders, however, may be willing to give you a loan. These organizations will look more at your ability to pay bills, as well as your income. If you find the right lender, you should be able to get a car – even if you do not have the credit to prove your reliability. You may even be an international student in the U.S. looking for a used car – by working with the right lender, you should be able to obtain financing.
3 Simple Steps to Applying for a Personal Loan for a Car
If you are considering applying for a personal loan for a car, just follow these 3 simple steps.
Apply online for the loan amount you need. Submit the required documentation and provide your best possible application. Stronger applications get better loan offers.
If your application meets the eligibility criteria, the lender will contact you with regard to your application. Provide any additional information if required. Soon you’ll have your loan offer. Some lenders send a promissory note with your loan offer. Sign and return that note if you wish to accept the loan offer.
The loan then gets disbursed into your U.S. bank account within a reasonable number of days (some lenders will be as quick as 2-3 business days). Now you need to set up your repayment method. You can choose an autopay method online to help you pay on time every month.