If you’re thinking of buying a car, you no doubt daydream about walking into a dealership with pocketfuls of cash, being handed the keys and then driving the car home without ever having to think about making payments for it again. Unfortunately, coming up with enough cash to purchase a car is simply not possible for the majority of us, and this why we often turn to car loans.
When you apply for a car loan, the first thing that the lender look at is your credit history. If you have no credit history at all, perhaps because you are a young person who has never needed to apply for credit before, it might appear like the odds are truly stacked against you.
Well, the simplest solution is to plan ahead and spend a few months building a credit history before buying a car. One trick you can use to do this quickly is to take out a store card – a credit card you can only use with one high street chain or group – use it to buy a few affordable items and then pay off the balance every month in full.
Another trick is getting a credit-builder card. While these cards are often targeted at those needing to improve a bad credit history, they are also useful for those with no credit history wishing to get started.
But if you need a car immediately and you simply don’t have the time to build a decent credit history, here are a few tips that can help you find the right car loan.
Find lenders that work with people with no credit history
It’s possible to get a car loan from lenders that specialise in finance for people with no credit history. Some are just a few online searches and clicks away, and therefore, Google can be a good place to start. After you have identified a few lenders, it’s a good idea to do some homework on them. For example, compare their interest rates and their lending terms and conditions to establish whose are the best.
One of the main advantages of these loans is that the approval rate is quite high. The lenders expect to be approached by individuals with no credit history and hence tend not to set strict requirements for their loans. Some might just require you to show proof of a steady income.
The main catch, however, is that the interest rates offered by these lenders are likely to be high, and you may also be charged significant fees, meaning the loan could prove to be very expensive. Therefore, it’s best to shop around and find a lender with the product and interest rates that best suit your needs. Once you find one, run the numbers first and see whether it makes sense to apply for the loan.
Find a guarantor to cosign your loan
You can significantly improve your chances of getting a car loan by finding a guarantor. This might be a friend or a family member. The role of a guarantor is to provide lenders with additional security for repayment of the loan. If for any reason you fail to make the payments, your guarantor will be responsible for repaying the loan. A loan application cosigned by a guarantor with a good credit history often makes lenders more willing to offer finance to those with no credit history.
When asking someone to be your guarantor, it is important to be mindful of the fact that you are asking them to put their credit score on the line for you. If you to fail to make the payments, you will not only be jeopardising your own credit but theirs also.
Consider your bank and local credit unions
Your bank knows you better than other lenders, and it may be willing to give you a car loan even if you have no credit history. If you are a loyal customer with a good transaction history, there is a good chance that the bank will listen and assist you.
You can also try local credit unions. Unlike other lenders, credit unions tend to take a personal approach to lending. They might give you a car loan even with no credit history and for a lower interest rate than you would get from a car dealership even with good credit. You can find these unions using the Find Your Credit Union website.
To get a loan from a credit union, you’ll need to become a member of the union. It is also worth noting that to gain membership to many credit unions, you need to share something in common with other members, such as living in the local area or belonging to the same organisations. Credit unions will still ask you about your credit history but are likely to be more flexible than other lenders in giving loans to people with no credit history.
Getting a car loan with no credit history can be a challenge and might involve high interest rates. However, if you succeed in getting the loan and then make the repayments faithfully, this can actually be a first step towards building a credit history that will make it easier to access better loan options in the future.
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