How To Buy A New Car With No Credit History? Yes, It’s possible to buy a car with no credit history. But getting financing for that vehicle may be difficult, and it is very likely you’ll face more challenges than consumers with a solid credit history may not encounter. Lenders prefer applicants who have an established pattern of responsible borrowing and making on-time payments.
In other words, lenders need to be able to prove that you are going to pay the money they lend back to them on time. While the dealership may seem like they are the one turning you down at the end of the day. If you want to buy a car with no credit. You have to convince both the salesman and the lender that you can pay back the loan.
11 Steps To Buy A New Car With No Credit History
1. Take care of your finances
Take stock of what you can afford. Before proceeding to buy a car, you need to look at your finances realistically. Just because you don’t have a credit history doesn’t mean you’re bad at paying your bills or loans. It just means in the past you had no reason to have credit. And now that you’re buying a car for the first time. Your lenders will want to see proof of finances and employment. Lenders want to see that you have the ability to repay the loan. Generally the larger the down payment, the better.
- Check your checking account and make sure to budget -How much extra money can you save inside your checking account without negatively affecting your bills?
- View your savings account- How many reserves do you have?
- If you do not have the extra money to be able to pay the monthly car payment. And insurance, you should wait to buy a car. Consider starting a strict savings plan and resuming car shopping after having money saved up. Lenders are more willing to take on the risk of lending to you. If you can put at least 20% of the vehicle cost for a down payment.
- Remember to consider how much you need to save in addition to the car payment for other ongoing expenses. Such as monthly car insurance, gas, and vehicle maintenance.
Related: How To Pay Down Credit Cards
2. Do You Know Your Credit Score ?
It is helpful to know what lenders will see when they look at your credit report. You should pull your credit report for free. Before you start applying for a car loan, especially if you don’t have a credit history. This can be helpful to you if you do not have a credit history. Because you may be surprised to find negative things on your record. If you have negative items on your credit report then you can use dispute letters to get those items removed. Get your free credit report from:
When Getting your Credit report you should draw your credit history from all three of your credit bureaus, TransUnion, Experian, & Equifax.
- There are many ways you can find your credit reports. On bureau websites, they charge around $40 for all three reports and a one-time check of your credit score. But a law called the Fair Credit Reporting Act requires that the bureau send you a free credit report once every 12 months. You can also ask your bank for a free credit report.
3. Open Up A New Credit Card Account :
You should decide if opening up a new credit account will be helpful to your credit score or not. If you have no credit history, a secure credit card or the Chime credit builder card could be useful because it doesn’t require a credit history to apply. If you are applying for non secured credit card or traditional credit card then. It’s best to not apply for a car loan at the same time. Too many new credit accounts are a red flag to lenders. You might need to wait for 3 to 6 months after opening up a new credit card to apply for a car loan. The longer the credit card history the better.
Related: Best Credit Cards For Bad Credit
4. Investigate Credit Insurance and Debt Consolidation
You can buy credit insurance to cover your debt, especially in an income situation. Credit insurance covers your payments, in part or in full, if you are unable to repay your loan. This can help protect your credit score against events beyond your control. Credit life insurance, disability insurance, and property insurance are all options available to consumers. If a lender can make it easier for you to extend a loan if they know you are willing to cover it in an emergency.
If you have too much debt that is negatively impacting your credit score try to find a company that can negotiate your debts such as tax debt, medical debt or personal loans such as CuraDebt. You can also consolidate your credit card debt with Payoff who combines all your credit card debt into one simple payment that you can afford. Each time you make on-time payments they will increase your credit score.
5. Can You Afford A New Car Loan?
Usually at the end of the car buying experience, you will be asked if you want any additional warranties and other services. Make sure you know what the extra costs are, how much they help, and if you can afford them.
- Extended car guarantees can ensure that you do not have to pay for major repairs. The downside is the extra cost, sometimes over $ 1,000. And keep in mind that if you’re buying a relatively new or used car, you probably won’t even need a warranty because the manufacture often includes a warranty for major repairs, such as engine or transmission failures.
- New cars, as well as some used cars, have a warranty that protects the vehicle for 3 or more years, so extended warranties are rarely a smart financial move.
- Payment protection plans are similar to credit insurance, only they are provided by the dealers themselves. The agreement is that if you can’t make your payment, the dealership will.
- However, payment protection plans are highly binding and the dealer is liable only if the buyer dies, becomes seriously ill, or becomes unemployed. Most financial professionals discourage the purchase of payment plans because they are expensive and rarely payout.
6. Do you have what the lender wants?
Once you’ve reviewed your finances and your credit score, think about what lenders are looking for and consider what you have. Lenders appear to be favorable to people with moderate credit scores (620-680), high incomes, and those who have worked for the same employer and lived in the same place for many years.
If you do not have these items, you may want to find a co-signer to help prove that you are good for the loan.
· However, by signing the loan jointly, the other party is now legally liable for any payments you do not make, which could have negative consequences for their credit score or financial health. Make sure you and your co-signers know the risks involved before signing.
How To Buy A New Car Without A Co-Signer?
You can also consider buying a tradeline which will give you all the benefits of having a co-signer without anyone taking on the liability of your credit. When you buy a tradeline, that line of credit is added to your credit report, for example if you buy a tradeline that has a $20,000 credit limit, 2% credit utilization and 10 years of credit history that helps out your credit significatly giving you a better change to buy a new car.
Related: What Are Tradelines and How To Get One
7. Find Proof Of Employment :
To prove that you are not a risky investment for creditors, you need to provide proof of employment. Collect both paper and electronic copies of as many of the following documents.
- Last year’s W2 tax form
- Pay Stubs with 6 months+ employment and salary
- An offer letter from your current employer with the salary listed
8. Show Your Assets
When you do not have a credit history, some lenders will take into account your assets. If you have a large investment in a retirement fund, money in the bank, or silver & gold the lender may be more inclined to lend to you.
9. Get Some References
Having people who can support the commitment to repay the loans, especially if you have taken personal loans from people and repaid them.
·Make a list of at least six people with names and contact information. This list should be people with steady jobs, lived in the same place, current employer, a manager or other qualified loan applicants, that have worked with the same lender in the past.
10. Find Proof Of School Or Military Status
If you would like to be consider for a discount through a car dealership, show proof of being a student (or recent graduate) or in the military. Loan companies may also offer discounts on the financing terms with your participation in such organizations.
· Evidence can be your Military or Student ID card, registration papers, dd214 or diploma.
11. Print Your Credit Report
The lender will always double check the credit history on its own, but bringing in your report and credit score can save you an additional hard inquire if you are not qualified yet. The lender might even be able to tell you what your score needs to be before they can lend to you. Having these numbers can also help your salesman find a vehicle in the price range you can afford with a good interest rate. You can get your free credit report here.
How to Find a lender for a car loan :
There are 3 options when it comes to financing your new car loan.
The Dealership (Many times dealerships will offer special in house vehicle manufacturers 0% financing or other introductory rates. The finance department at the dealership can also shop your loan to many other lenders they have a history with)
Banks (Large banks like Chase, Wells Fargo & Capital One) You can reach out to the banks you currently bank at and get pre-approved for a car loan before you begin vehicle shopping.
Credit Unions ( A credit union, is a type of financial institution similar to a commercial bank, they are member-owned financial cooperative, controlled by its members and operated on a not-for-profit basis)
Related: Best Loans for Bad Credit
Is it better to finance a car through a credit union or dealership?
If you are buying a new car, a dealership might be able to offer special 0% financing and this is the best rate you can get. If a dealership doesn’t offer special financing a credit union will likely have less fee’s and be able to offer better rates than a large commercial bank. Even if you are not a current member of the credit union you may just need to make a small $25 dollar deposit into a checking account to become a credit union member.
Not having credit doesn’t mean you can’t buy a car:
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