If you don’t have a credit history, it’s hard to get a car loan. Lenders need to see that you’ve borrowed money before and paid it back on time. However, just because you have no credit history doesn’t mean you can’t get a car loan. It just means it’s going to be a bit more complicated.
Here are six things you can do to get approved for a loan if you have no credit.
1. Compile Documents
When you have no credit history, you’ll need to show the lender that you are responsible and employed. To do this, you will need to show your employment history using your pay stubs, your previous residencies and how long you stayed there, and your driver’s license. Furthermore, they may ask to pull information from your bank accounts to show how you manage your money. On your online car loan application, these things will demonstrate that you are gainfully employed, have a stable living situation, regularly pay to keep your driver’s license up to date, and manage your money responsibly. All these things can go a long way towards convincing a lender that you’re trustworthy.
2. Use a Co-Signer
If you have a relative or close friend who is willing to cosign your car loan with you, this can improve your chances of getting approved. A co-signer is someone with good credit who promises to pay your debt if you default on your loan. This will make lenders feel more confident about giving you a loan. However, you need to make sure the co-signer is fully aware of their responsibilities. Not only will they have to pay your debt if you default, but if you’re late on a payment or miss a payment, it will go on their credit history and drag down their scores. Furthermore, your loan amount will be counted among their debts when they apply for loans or credit cards.
3. Build your Credit Score
You need to start building your credit score. The easiest way to do this is to open a credit card. By opening a credit card and making the payments on time, you will begin building a good credit history. Even if you don’t have your credit card long enough to build a credit history, if you can show that you have a card and make regular payments, this will give the lender confidence in you.
4. Use Dealer Financing
You’ve probably seen car dealer advertisements that read, “no credit – no problem.” This signals that the dealer is willing to work with people with no credit history. However, you must make sure the dealership has a good reputation. You don’t want to get swindled. You should also be aware if you have no credit history, the dealer will likely offer you a higher interest rate for your loan or ask you for a large down payment.
5. Use a Credit Union or Community Bank
Credit unions or community banks can be more lenient in giving people loans who have no credit history. The secret is to know where to look. To begin with, you should look for lenders that offer programs for first-time buyers. These are programs designed specifically for people with little or no credit.
6. Consider a Marketplace Loan
These days there’s a market for everything, including loans. With a marketplace loan, you work with a broker. A broker will analyze your financial data and give your terms to potential lenders. The lenders will then decide whether to provide you with a loan based on the broker’s data.
If you have no credit history, getting a car loan isn’t the easiest thing to do, and it may take some time. However, with patience and some work, you should be able to get a car loan. You just have to find the right lender.