When it becomes time to purchase your first vehicle, you likely have a lot of questions. Some of the most common revolve around how to get a car loan when you have no established credit history. In reality, it may not be as easy as getting a car loan if you have a lengthy credit history, but it is entirely possible.
Factors to Consider Before Buying a Car
Before you head to the vehicle lot, you first want to sit down and consider a few factors. The first is whether or not you have a steady income and what your potential budget can be for a new car purchase. Due to your lack of extensive credit history, lenders are more likely to rely on other factors such as your income to decide whether or not they’re going to fund your loan.
According to Lantern by SoFi, “Your total debt payments each month typically should be no more than 45% to 50% of your monthly income, although the exact percentage may vary by lender.” You should take a few moments to determine what your debt to income ratio currently is to ensure that it falls into this acceptable range.
Another factor that you may want to consider is whether or not there is someone in your life that would be willing to cosign for the loan. Typically, auto loan lenders will be able to approve your loan and potentially give you more favorable rates if you add a cosigner to your loan. Having a cosigner simply means that that person will take on personal liability for the vehicle loan alongside you.
Tips to Finance Your Car With No Credit
Whether you’re opting for a new vehicle loan or an auto loan cash out refinance, it is possible for you to enhance your ability to get approved for the loan. The first option is one that we touched on above, which is to get a cosigner. When you have an established credit history, lenders will be more likely to approve you for a loan.
Another thing that you can do is offer to put a down payment on the vehicle. A down payment is an amount that you give to the lender at the time of the loan creation process that shows your commitment to repaying the loan. When you have no credit, it’s likely that lenders will want to see a pretty sizable down payment as compared to the total loan amount that you’re taking out in order to approve your loan.
Another potential option for getting a loan approved when you have little to no credit history is offering collateral. Collateral is essentially any asset that you own which you give up rights to the lender in case you default on your auto loan.
While getting approved for an auto loan with little to no credit history may be a bit more difficult than if you had an established credit history, it’s not completely impossible to do when you utilize the right strategies.