When you apply for a car loan, a lender will look at your credit history to determine the level of risk and whether you are likely to repay the loan on time. If you haven’t established a credit history, you are likely to be considered a higher risk. Therefore, the interest rate is likely to be higher, as well as your monthly payments. While buying a car with no credit history is more difficult, it is still possible. Here are some ways you can do so:
Provide Alternative Credit Data
Overall, auto lenders don’t use alternative credit information, but showing you’ve responsibly paid your bills may help. Keep a record of your rent, utility, or cellphone payments; scoring formulas such as FICO XD include these. Alternative data can be used to increase your Experian score. However, using this approach requires sharing your banking data, and your auto lender’s underwriting process must use Experian data.
Find a Credit-Worthy Co-Signer
If you can find a co-signer with good credit and who agrees to have their name on your loan, this is a more effective way to be approved. The co-signer also takes on the risk of being responsible for payments if you are delinquent. Lenders look at this as safe because the primary account holder is more likely to repay the debt to avoid a negative impact on their credit.
Offer a Higher Down Payment
The size of a loan affects your chances of approval. The larger the down payment you save up for, the lower the loan amount you need. This can increase the odds of a lender approving you for a car loan because you’re a lower credit risk. They’ll also be less interest to pay over the life of the loan.
Shop Around for Lenders
Every lender has its own eligibility requirements. The loan terms and interest rates can vary greatly between similar loans. There may be a lender more open to working with people in your situation. For example, some lenders work with people who have no credit history, such as students. Also, you can shop for a marketplace loan if you’re comfortable sharing personal data with a reputable broker, and can find one that works with no-credit borrowers.
Another option is car dealer financing. Many dealerships have their own financing departments; since they are more concerned with making sales than whether you have credit or not, they may offer some options. However, the interest rate may be high, additional money down may be required, and you need to watch out for scammers and predatory lenders.
Start Building Your Credit
Apply for a credit card, become an authorized user on someone else’s card, or sign up for a credit builder loan if you can hold off on purchasing a car. Just make sure your monthly payments are reported to Equifax, Experian, and TransUnion, the three major credit reporting bureaus. You can also apply for a secured credit card, which requires a security deposit but works similar to normal credit. Plus, you can get your deposit back for using your credit card responsibly.
Need to Repair Your Credit? Contact American Credit Today
Inaccurate credit reporting can damage your credit history. Whether an error on your credit report has had negative impacts on your credit score or you have past late payments, charge-offs, repossessions, foreclosures, or bankruptcies, we can help improve your credit through a pre-litigation process. To learn more about American Credit Repair, or to request a free no obligation consultation, call us at 855-274-1732.