- Why Credit Matters When Car Shopping
- Where Can I Shop For An Auto Loan With No Credit?
- What Do Auto Dealers Look At When You Have No Credit?
- Ways To Help Increase The Likelihood Of Being Approved For A Car Loan
- When Do You Need a Cosigner Buying a Car Without Credit?
- How to Buy a Car With Little to No Credit and No Cosigner
- Types of Car Loans to Avoid if You Have Little to No Credit
- Tips for Getting a Car Loan
- The Bottom Line
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: “Is it possible buying a 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. We’ll surely get you rolled out of 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 used 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 a 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 are buying a car with 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 of 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 toward 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 additional 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 prepared 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 hired for a new job, the equity issue will be decisive for a lender in approving or rejecting the loan application.
Where Can I Shop For An Auto Loan With No Credit?
There are three main car-shopping options when it’s time to purchase a used automobile with no credit. But before you use one of these options, you should check the vehicle's history on Carfax.
Lenders That Work With All Credit Profiles
Some lenders will give zero-credit prospects the opportunity to establish a good credit score by practicing on the right track. This strategy is popular among some banks and dealerships, making life easier for them. They’ll help you build up your credit history through some additional steps. Even after you buy and drive off the lot, they will have a way to monitor your financial responsibilities.
Special Financing Offers
Many dealerships will offer zero-credit buyers special financing options. Here, you’ll get a credit limit of up to 10% (of the vehicle price), which you’re allowed to use for the purchase, trade-in, or new car loan. The interest rate is determined by your credit history and loan amount limits. It can be very low or higher than regular rates, but it doesn’t really matter: in the end, it all depends on your credit score being approved.
Credit union agencies typically work exclusively with low-credit borrowers who need money for a car purchase. The payment is based on an amount of income you’re ready to use in paying off your car loan or service contract at the end of its term.
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 making things better for 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 six 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.
You need to come up with the cash amount covering at least 45-50% of the car sales price. If you're choosing a trade-in sedan, please 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 car is and its make, model, and condition.
2-4 year old used car usually gets 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 cars are purchased by dealers to be sold at an auction. Therefore, their trade-in value will be a little lower with a 26-29% discount off the Kelley Blue Book value.
Older vehicles are 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 provide workable solutions even if it's not the car you initially wanted.
Ways To Help Increase The Likelihood Of Being Approved For A Car Loan
If you want to increase the likelihood of being approved for a car loan, then there are certain things you need to do to help you out. You should get started on them right now, and they will be able to help you out quite a lot. So let’s talk about them right now and see what you can do.
Get A Credit Card, And Use It Responsibly
If you want to be approved for a car loan, then one of the best ways that you could work is to get yourself a credit card. Then when we say that use it responsibly, we mean don’t go out and buy things just because you have them. Try to pay your credit card bills on time every month, and you will find yourself in a much better financial position when applying for a car loan.
Make Sure You Have Some Savings
You should also make sure you have some savings when you try to get a car loan. The reason is that if you cannot prove that you have enough savings when going out and trying to get a car loan, then people will be unlikely to lend money to you. So try your best to make sure that you have some savings, as it will help improve your chances of being approved for the car loan.
When Do You Need a Cosigner Buying a Car Without Credit?
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. For example, your credit score is too low and insufficient to obtain a loan. If your cosigner'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. The same things if you're new to the area. Just got a new in-state driver’s license and didn’t have sufficient proof of residence, having only a month or two in rent/utility bills.
Your credit history is good, and your credit score is high, but presently you’re out of a job or don’t have a stable source of income. Another thing if 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. These are the situations where a cosigner is required.
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 and 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 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 used 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. You may finance it through one of our lenders or obtain outside financing on your own (betcha, our finance center will match or beat the terms you get someplace else). You can also trade in your old vehicle and pay cash upfront.
We will architect the deal for you depending on how many of the above options are available to you and their proportions. 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
There are some car loan types you should avoid:
- 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. You're in trouble if you’re making $3000 a month and your car loan payment is $1500. 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. The Kelley Blue Book’s fair value for the vehicle is $7000. But in order to sell it to you, scammers may lemon it up to $10500 by requiring a $2000 down payment and lending you $7000 with a 7,2% interest rate for three years.
Tips for Getting a Car Loan
Many people who have trouble obtaining a car loan are not aware of the significant steps that need to be taken to get one. The average car loan requires months of hard work. Here are some helpful tips that you can use:
Make A Down Payment
Your down payment is the amount you put up in cash towards the vehicle you want to buy. This can be done by using your savings, selling possessions, or even convincing someone else to make an upfront payment. If you don’t have anything at all, see if there is any way you can get something from your parents, grandparents, or friends for this purpose.
Get Someone To Cosign On The Loan
Having a cosigner for your car loan application is very helpful and will allow you to obtain financing for the vehicle you want. A cosigner is someone who will be held responsible for repaying your auto loan if you fail to pay it back. This person must be a relative, friend, or significant other with good credit and income to help you buy a car without much money.
Delay Your Loan While You Build Your Credit
Another great way buying a car without the credit is to take some time and build your credit. After you spend some time establishing a positive credit history, you will have much better options for financing your next vehicle.
Applying for credit cards or secured credit cards to start building your credit. When you make payments on time on these accounts, your score will begin to increase over time. Once you have built up a good reputation with lenders, it should be easier to get them to extend an unsecured loan to you in the future.
Use Your Loan To Keep Improving Your Credit
Once you have built your credit scores, it is important that you maintain them. The best way to do this is to make sure that you keep your bad credit loans under control. Paying back a loan on time and in full each month will allow you to keep your good credit score. If you begin to miss payments, the lender will flag your account, and it can become more difficult to obtain financing in the future.
The Bottom Line
The bottom line is that getting a car loan with little or no credit means putting in more work and spending more time than usual. But it is still worth it. Buying a car with an affordable down payment has many benefits. It helps you get started on the road back to financial stability and gives you the opportunity to establish your credit rating and restore your credit score.