So, your credit score is in the dirt and you need a new car. But, can you even buy a car with no credit? The short answer is: it depends. Lenders tightened their underwriting restrictions significantly after the 2008 recession. The good news is that they are slowly lifting some of these restrictions in favor of borrowers with less than stellar credit scores. That said, buying a car with no credit is no easy feat. You’ll need some tools to navigate the process effectively and successfully. If you’re wondering how to buy a car with no credit, then you’re in the right place. In this article, we’re breaking down everything you need to know to find reliable wheels. Keep reading to learn more.
How to Buy a Car with No Credit
If the question, can I buy a car with no credit is reeling through your mind at every waking moment, you need answers. And, it’s a good thing you’re performing your research because buying a car is a big investment, regardless of your credit score. If this is your first time buying a car, there is even more to think about. Follow the tips outlined in this article to make the car buying process itself a little easier on your psyche and your pocketbook. But of course, if you have no credit you should read this, first:
Get a Co-Signer
Whether you have a bad credit score or no credit at all, lenders look at your financial habits as risky. This means they are less likely to offer you a loan without assurance that they will get paid. A co-signer is someone with a favorable credit score that agrees to pay your debt if you don’t fulfill your end of the agreement. Usually, a co-signer is a close relative or trusted friend.
One way to avoid worrying about your credit score altogether is to pay cash. This is a great alternative to financing that can further strap you later down the line causing more negative impacts to your credit. You’ll also pay less for your vehicle overall without interest piling up on a loan. Of course, most folks don’t have stacks of cash lying around.
Keep in mind that you have options for financing outside of the dealership. In fact, you may be approved for a fair rate with your own bank or credit union. Credit unions, especially, are well known for offering loans to people based on income. Likewise, if you have a strong income and employment history, lenders are more likely to consider you as a borrower. Do your homework to find out what kind of loans you may be eligible for before you start shopping.
Length of the Loan
If you do secure financing, take a good look at the length of the loan. Especially if you’re being charged a high interest rate (which you probably are). The longer your loan, the more interest you are paying in the long term. On the other hand, some lenders may actually require that you take a shorter-term loan. This helps to lessen the lender’s exposure to risk.
Lenders consider the loan amount when making their determination to give you a loan or not. If you have a significant down payment for a vehicle to bring the loan amount down, you may be more likely to get approved for financing. This will also reduce your monthly payment so try to budget your down payment according to what you can afford.
Buy Here, Pay Here Dealers
If you just don’t have the credit to buy a car, there is one last option to get on the road. They’re called ‘Buy Here, Pay Here’ dealers. These are small, generally, owner operated car lots that provide in-house financing at extremely high interest rates. Be careful with these type of dealers. Some cars on the lot could be lemons that are going to break down after only a few thousand miles leaving you with a loan on a car that you can’t drive. Look for a dealer that provides written warranties or other written assurances regarding the car’s roadworthiness.
Start Building Credit
If you have time to spare before you need to buy a car, the best thing you can do is start building credit. You should have at least one credit card or a revolving personal loan with monthly payments.
Average Credit Score to Buy a Car
But, then, what’s a good credit score to buy a car? Typically, lenders like to see that you can make payments on time for at least a year regardless of your credit score. It will probably take at least that long to build up a credit score anyway. The average minimum credit score to buy a car with a traditional dealer is around 660. Of course, your interest rate will still be higher than that of someone with a credit score of 700-750.
Credit Building Tips
Don’t miss a payment on your revolving credit accounts. Also, don’t be late with your payments. Set reminders or enroll in auto pay with your credit accounts to avoid a crippling effect on your score. Also, use no more than 30% of your total credit limits at any given time. This will help build your credit score and show lenders that you are a responsible borrower.
If you want to buy a car with no credit, you can but it takes determination and generally involves higher interest rates. Now that you know your options you can start making a game plan and put it into action. Make sure to set a budget so that you’re sure of what you can afford when you begin shopping. When you find a car that you love, you’ll want to protect the investment. If you are considering buying a new vehicle, contact us with questions about how Lemon Proof can help protect you.