If you’re a young adult who hasn’t had time to build their credit or perhaps new to credit in general, the process of building your credit score can seem overwhelming.
Getting a car loan with no credit might seem like an impossible feat, but with just a little bit of prep work, it’s very possible.
Before you settle for below average loan options with through the roof interest rates and high monthly payments, follow these helpful steps and you’ll be well on your way to securing the best car loan rate available.
1 – Open a bank account
Step number one is opening a bank account which will be the base for your credit portfolio going forward. Getting a bank account is quite straightforward and no credit history will be required for a basic checking or savings account.
Simply select a bank and bring some identification to sign up.
2 – Put some cash aside for a downpayment
There are multiple benefits for putting down a larger downpayment on your car. Not only will you pay less interest over the course of your loan, but you’ll also find it easier to qualify with any lender when you bring more cash to the table. Try to save up to 10-20% of your desired car’s total cost for a downpayment.
By borrowing a smaller amount, you’ll make it easier to procure a no credit car loan. While it might take some extra time to gather a downpayment, you’ll be saving money in the end by paying down a smaller loan at a better interest rate.
3 – Collect your documents
Lenders want to see that a person is financially responsible before they give out a loan. A credit history speaks to your background and builds a story for potential lenders.
Since you don’t have a credit history, you’ll need to demonstrate your financial profile to lenders by supplying other documentation. You can suggest bank statements, proof of paid bills such as your utilities or phone, and proof of your employment history as alternatives.
Supplying pay slips is also highly recommended if you have them, but if you don’t, you can likely get away with simply providing your bank statements showing regular income. Most lenders will likely ask for a minimum of 3 months verification.
Gather whatever documentation you can provide to prove your financial accountability and it’ll be easier to make a case for an above average car loan rate.
4 – Get a cosigner
If you have a trusted friend or family member that will vouch for you, consider asking them to be a cosigner on your loan. If they have an above average financial situation, their presence on your loan will reduce the perceived risk from the lender’s perspective.
Remember, if you fail to make any payments on your loan, that responsibility will fall to your cosigner, and it could even affect their credit score.
You can get approved without a cosigner, but your terms and interest rate might be worse.
5 – Talk to your bank about a loan
Before going to a car dealership, ask your new bank what options for a no credit car loan they might be able to offer you.
Now that the bank counts you as a customer, they’re more likely to offer you favorable terms on a loan than a third party likely would.
Banks tend to look more positively on people with no credit as opposed to bad credit, so this might be a viable option for getting the best car loan rate.
6 – Move on to a dealership
If the bank is not willing to extend you a loan, your next best bet is to try and get one through a car dealership. If you already have a vehicle in mind at a specific dealership, go to the dealership and inquire about their financing options.
Dealerships are incentivized to help you find a loan because they ultimately want to sell the vehicle, so while the loan might come with a higher rate, you’re more likely to qualify for one.
With that being said, make sure you don’t jump on the first loan offered to you without doing your due diligence on the terms.
Some loans come with unreasonable conditions and require buyers to also purchase extended services such as warranties or even insurance in order to qualify, and in these cases, you should be very wary.
7 – Make regular payments
Now that you have a loan, your credit profile will continue to build. Since this will be one of the first entries into your credit history, you’ll want to make sure that you start out strong by staying on top of your payments.
Always make sure to make your payments on time, and if you do this through the course of your loan, you’ll build a stronger credit profile going forward. That means the next time you need to borrow money, you’ll be able to get a loan much easier.
Congratulations! Now you know how to get a no credit car loan
By now you’ve seen that it’s not impossible to get a no credit car loan, but remember, it’s even harder to get a loan with bad credit.
That’s why you’ll need to be careful with the loans you accept and stay on top of your payments once you have a loan. This will safeguard your credit going forward and make life much, much easier.