Very often, there is an urgent need: you need wheels right away, but your credit is null. Zero. Regardless of whether you’re too young to establish one, this is your first attempt to obtain a loan, or you have experienced rough times in the past, the problem is obvious. And you ask yourself: “How in the world can I buy a used car with no credit?”. But don’t give up on that one - the help is on its way! Here at Rolls Auto, we’re proud of solving even the most difficult financial issues. Our Finance department is one of the best in town so take a little patience. Yeah, surely we’ll get you rolled out the lot in your dream car, but first, you need to do a little homework. The time is near when you’ll drive off the lot in your new ride!
Why Credit Matters When Car Shopping
When you’re on the market to purchase a car and pick out the one you like, a dealer is weighing three financial components to make the final decision of selling it to you.
The first and most important component is your credit history. It defines through credit score the loan amount limits and the interest rate you can get. The higher the lending limit, the more loan percentage you’re allowed to have in a total sale price amount - the higher your purchasing power. The nicer vehicle you’d be able to buy. A lower interest rate will help to pay less on your loan installments.
If you have little or no credit, there might have been problems making loan payments in the past, no matter what caused them. Also, there could be no payment history at all if this is your first attempt to obtain loan financing. As a result, your credit score will be low. Credit history is most important but not fatally influential to a lender’s decision. There’s always a question how exactly a poor credit rating was developed:
- due to objective reasons such as temporary economic hardship, losing employment
- or because of a silly and frivolous attitude towards repaying obligations.
The second is your income. It must be high and stable enough, ensuring your ability to meet loan payments. If a sustainable cash flow isn’t there, even a good credit history won’t help.
The third is supplemental equity you’re ready to bring to the table. It could be some cash amount for a down payment, a trade-in car, or a co-signer ready to step-in and become a second borrower for your loan. Sometimes when let’s say your credit history isn’t perfect (or none) and you’re just got hired for a new job, the equity issue will be decisive for a lender in approving or rejecting the loan application.
What Do Auto Dealers Look At When You Have No Credit?
Even if your credit score is low or none and you’ve been turned down somewhere else, the dealer will always try to establish financing for you. Rolls Auto Sales Finance department is proud of turning things better way for so many happy customers. If outside lender sources are not available, see if you can get financed right here at Rolls Auto. Make sure to bring all necessary paperwork, and we’ll see what we can do for you:
- Proof of income
- Paystubs for at least 6 months
- Social security or pension stubs
- Award letter
- Bank statement showing cash inflows and outflows (f. ex. if you’re self-employed or running a small business).
- Proof of identity and residence
- In-state up-to-date Driver’s license
- Utility bills with your actual residential address
- Lease agreement if you rent
- Mortgage agreement with the proof of regular mortgage payments.
But what will a dealer do if the loan financing option isn’t really available at all? As it was mentioned above, a dealer will analyze how much equity you can put down right away to make the deal go through. Let’s do a little budgeting to see what price level you may afford without loan financing when picking the vehicle to buy.
- Cash amount. You need to come up with the cash amount covering at least 45-50% of the car sales price.
- Trade-in car. Bring us your old vehicle for trade-in. We’ll get it appraised and make you an offer. Trade-in prices generally depend on how old your vehicle is and what make, model and condition.
- 2-4 year old cars usually get the most value, especially when they require only minor repairs and tune-up. These cars are up for direct reselling. So your trade-in offer will be anywhere near 22-25% off the Kelley Blue Book value.
- 2-10 year old vehicles requiring major repairs. Usually, these kinds of vehicles are purchased by dealers to be sold at an auction. Therefore the trade-in value for them will be a little lower with a 26-29% discount off the Kelley Blue Book value.
- Older vehicles of little or no value to a dealer but probably of interest to somebody else. Perhaps, to be sold on Craigslist. Here the trade-in offer will depend on the exact car condition and make.
Let’s say you were able to bring $4000 in cash and a dealer offers you another $5500 for the trade-in vehicle. The total deal budget will be $9500, and keeping that in mind, you may pick out the car you like in Rolls Auto’s inventory. While doing that, be attentive to car options a dealer may offer you. Based on your “no credit” situation, a dealer may still offer you workable solutions even if it's not the car you initially wanted.
When Do You Need a Cosigner to Buy a Car?
Quite often a lender will require a cosigner to step-in and become a second borrower for your loan. In what cases will this requirement arise? Let’s cover the most popular ones.
- Your credit score is too low and insufficient to obtain a loan. If your co-signer's credit score is higher than yours, then a loan option will be available to you.
- You’re unable to present sufficient proof of income. For example, you just get hired for a job, and there's not enough wages/salaries pay stub history for immediate loan approval.
- You’re new to the area. Just got a new in-state driver’s license and don’t have sufficient proof of residence, having only a month or two in rent/utility bills.
- Your credit history is good, a credit score is high, but presently you’re out of a job or don’t have a stable source of income.
- You’re self-employed. Just started a new business and your bank statement financial figures aren't enough for a lender to approve a car loan.
- You’re a first-time car buyer:
- Don’t have a credit history at all
- Do have a credit history but never had a car loan.
It’s important to keep in mind that having a cosigner in your loan application should lower the overall risk to a lender. Your cosigner should have a better credit score, better proof of income and residency than the primary borrower.
How to Buy a Car With Little to No Credit and No Cosigner
Even with little or no credit and no cosigner, you still may be approved for a loan. The way to do that is to increase the down payment share in the total sale amount. It significantly improves your bottom line both by cutting down monthly installments and fixing your credit history. We may require to upsize your down payment to 15-35% of the total deal in order to obtain loan financing for the rest of it. Now let’s go over all the necessary steps.
- First, let us know that you’re interested in buying a car. Give us a call or check a car availability through our website, schedule a test drive, or apply for financing online. Discuss your personal situation with one of our sales representatives to figure out which option may work best for you.
- Next, choose the exact car you like to buy. This way, you’ll set us the final goal we will work towards. Sometimes, in a “little or no credit” situation, we may offer you only a few vehicle options available. These solutions are still good and workable for you even if it’s not the car you initially wanted.
- At this point, you need to decide how you’re going to pay for the vehicle of your choice.
- Finance it through one of our lenders
- Obtain outside financing on your own (betcha our finance department will match or beat the terms you get someplace else)
- Trade-in your old vehicle
- Pay cash upfront.
Depending on how many of the above options are available to you and their proportions, we will architect the deal for you. Even with little or no credit and no co-signer, you may obtain a loan by putting more money down and turning in a trade-in car.
Types of Car Loans to Avoid if You Have Little to No Credit
Stay away of:
- High interest rate rip-off offers. 19,5% or 22% loan rates are not healthy figures for buying a car or re-establishing your credit. Often these loans have hidden commissions and other attached strings. So watch out!
- Revolving credit options. Using a credit card for buying a car is a particularly bad idea. Especially when you don’t have enough income to pay it off every month, ending up paying huge interest rates and hurting your credit with past due payments.
- Loans with monthly installments higher than 25% of your total income. If you’re making $3000 a month and your car loan payment is $1500, you’re in trouble. The risk of not being able to make the payment at some point is very high.
- Scamming when they try to sell you a car for a higher price using your “no or little credit” status. Let’s say the Kelley Blue Book fair value for the car is $7000. But in order to sell it to you, scammers may lemon it up to $10500 by requiring $2000 down payment and lending you $7000 with 7,2% interest rate for 3 years.
Frequently Asked Questions about how can I buy a car with no credit
Where can I buy a car with no credit and no down payment?
You can do it right here at RollsAuto Sales. If you’re short on cash to meet down payment requirements, there’s always the possibility of trading in your old vehicle. Use the online tool to value your trade-in vehicle, bring it to the dealership, and we’ll make you an offer. You may then apply the trade-in amount towards a down payment on the used car of your choice.
How can I finance my first car with no credit?
Whether you have no credit history at all or have a credit history but never had a car loan, our Finance department will surely work out a financing option for you.
- Proofs of income and residency will be required to establish a credit standing
- In some cases, we will require a cosigner to step-in and become a second borrower for your loan
- Down payment for at least 10% of the sale amount may be obligatory
- Lender may apply some restrictions to a vehicle we’d be able to sell you:
- “year restriction” - for example, a car shouldn’t be older than 3 to 6 y.o.
- “mileage restriction” - for instance, it must be under 100k miles.
- “price restriction” - limit for overall financing amount as a percentage of the maximum sale price. For example, the sale price can't be higher than $12000 and financing amount will be limited at 87% of it.
What credit score do you start with?
There is virtually no limit on how low a credit score can get. Let say the credit score of 350-400 still leaves a financing door open. If you have a sufficient, stable, and reliable source of income and a hefty 45-50% down payment - that will do the job.
How can I get a car with no credit at 18?
If you don’t have any proof of income, pay cash upfront, turn in a trade-in car or have a cosigner (for example, your parent or relative) on your loan application.