How can you buy a car with no credit

There are several mileposts of mobility that we hit as we're growing up. Those toddling first steps. Learning how to ride a bike. And perhaps most liberating of all, getting a driver's license.

But the true moment of freedom is not when we are able to borrow the keys to the family sedan. Instead, it's when we are able to purchase a car of our own. Suddenly the road to true independence looms in front of us, as we prepare to drive off into life.

The problem is, buying a car is one of the most expensive purchases a person can make, certainly for a 20-something-year-old who is just starting out. At that point in life many people have yet to establish any sort of significant credit record. Without it, how do you finance a purchase that can cost tens of thousands of dollars?

Buying a Car with No Credit History vs. Bad Credit: There's a Difference

The first thing to remember is that having no credit history is not the same as having bad credit. It is not necessarily a strike against you. Lenders understand that young adults just starting out may have no credit history, and one of the best ways to establish a solid credit record is to make prompt payments on a loan over a lengthy period of time, which is exactly what a car loan entails.

Provide Proof of Earning Potential

When applying for an auto loan, you will be asked to provide evidence that you have the financial resources and stability to make the monthly payments. So be prepared to show proof of income, length of time at your job, bill payments, length of time at your residence, and even personal references.

Use a Co-Signer

Having a co-signer for the loan, if possible, also is a way to overcome the lack of a credit record.

Get Pre-approved

Since dealerships obviously want to sell cars, they will usually try to work with buyers who have no credit history. But it usually is better to get pre-approved for a loan from a bank or other lender before you ever set foot on a car lot. This way you know in advance what you can and can't afford, enabling you to approach your purchase with a firm price range in mind.

Seize the Initiative

In addition, being pre-approved gives you something to use in your negotiations with the dealer. It helps convince them that you will be able to make the loan payments, and it also can provide an incentive for the dealer to offer a lower interest rate. As the century-old, car-valuation service Kelley Blue Book states, you don't want to be negotiating with a finance and insurance representative at the dealership who "is holding all the cards."

"The deck – if you will – is stacked against you. Better to talk with your bank and line up your financing in advance. You can always go with the dealer option if it's competitive. But never approach it as if the dealer is the only money game in town."

It is possible to buy a car if you don't have credit. However, it can be difficult because people without a credit score have fewer vehicle financing options. Read on for tips on how to finance a car with no credit.

How Hard Is It to Finance a Car With No Credit?

It is difficult to finance a car without a credit history because dealers can't establish whether you will pay on time. Regardless of your past purchasing history or level of income, lenders want to see concrete evidence of your ability to repay loans. Unfortunately, it is almost impossible to verify your claims of paying promptly if you have little to no credit.

When you apply for a car loan, one of the most important criteria for approval is your credit score. If you've never bought something on credit or don't have enough credit history, lenders may consider you a higher risk.

Lenders that might offer you credit will probably do so at a higher interest rate, so you can expect to pay higher monthly payments compared to someone with a credit score. However, there are millions of people like you who don't have credit. Once you successfully get a lender to finance your car purchase and adhere to the terms of the transaction, you are on your way to building a credit history that will make future deals easier.

Can You Do Payments on a Car With No Credit?

There are several ways to pay for a car, even if you have no credit history. Here are some options to consider:

Lenders that Accept All Credit Profiles

There are lenders that work with all credit profiles, including people with a bad credit history or no credit at all. However, these institutions also do due diligence to ensure you can repay your auto loan. You may need to show the lender evidence you have a steady income source to support regular and punctual monthly repayments. The lender may also have a dealership network from which you must buy a car if you want them to finance the purchase. 

Credit Unions and Community Banks

If you are a member of a credit union or a community bank, you can take advantage of their generous loan terms to finance your car purchase. These lenders often have more lenient financing policies that offer loans to people without a credit history or who had financial difficulties in the past. Many credit unions even allow you to buy a car and build your credit profile with credit-builder auto loan programs. 

Get a Co-Signer

If you have no credit or your profile is not robust enough, lenders may ask you to get a trusted friend or family to co-sign the auto loan with you. A co-signer is someone who applies for a loan with you, using their credit history. Having a co-signer with a great credit history can increase the chances of your loan's approval and also get you a lower interest rate. 

However, the co-signer is completely responsible for your loan if you default, and late or missed payments will reflect on their credit history. Future lenders will count your loan among the co-signer's debt whenever they apply for loans or credit cards, which may damage their scores and make it difficult to get financing for their own purchases. When you are considering the co-signer option, ensure you can repay the loan promptly to protect your co-signer's credit history. 

Use Special Financing Offers

Many lenders, vehicle manufacturers, and dealerships offer special financing programs for students, recent graduates, and people with little or no credit history. For these loans, the lender uses other criteria apart from credit to qualify people. Some of those factors include a down payment, GPA, and income.

Leverage Alternative Credit Data

If you have a checking account or pay utility bills or rent, you might be able to use these to secure an auto loan if you have no credit history. Some lenders will approve your car purchase loan if they can see evidence you've been diligent with your bills. However, not every auto lender uses alternative credit data to qualify car loan applications, which means your options may be limited. 

Try Dealer Financing

Regardless of your credit profile, you may be able to convince a dealership to finance your car purchase. The dealerships that offer this type of support often work with major automakers. However, they may need to see proof that you have a steady income and have been responsible with bill payments in the past. If you are considering this auto financing route, reach out to a reputable dealership near you and ask them about their car purchase options, requirements, and payment options. 

Is No Credit Better than Bad Credit?

While no credit and bad credit create difficulties for people, it is better to have no credit at all than to have serious blemishes on your credit history. Having no credit means lenders have no credible way of assessing your ability to repay your loans. A bad credit score shows creditors your credit history has serious issues, which can make it difficult for lenders to trust you when applying for loans. Low credit scores can result from missing payments repeatedly or defaulting on your debts.

When you have no credit, your biggest challenge is building a credit score. However, it is much more difficult to create a stellar credit profile from a bad credit history because lenders will always assess your past loan payments before approving new applications. So, your chances of getting new loans, which is vital for rebuilding your credit score, drop significantly.

Do First-Time Car Buyers Need a Down Payment?

For first-time car buyers, most auto lenders will probably request a down payment of at least 20% of the vehicle's price. There are several reasons lenders ask for a down payment. First, it ensures that you don't owe more than the value of your car. A down payment also reduces the amount of funds lenders have to give you to purchase your car. Opting for a bigger down payment can also help you get more favorable payment terms. 

Contact Kings Toyota

Have any other questions about financing a Toyota with no credit or bad credit in Cincinnati? We can help you at Kings Toyota. Get in touch to speak with one of our auto financing specialists today.

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