No Credit History? Follow These Easy Steps For Automobile Financing

Financing a new car with little or no credit history is not as complicated as you may imagine. All it takes is a few strategic moves, a little discipline, and time.

Here are some more options to establish a successful credit history and qualify for automobile financing and the best interest rates, which can save you thousands of dollars over the life of your loan:

  • Get a gas card. These are easy to get, but make sure the company reports to a credit agency, or it won’t help establish your credit history. Use it frequently and pay the bills on time. In fact, pay all your bills on time.

  • Apply for a secured credit card. This is a credit card with a low credit line, secured by a deposit. This means that if your limit on the card is $200, then you deposit $200 to cover the bill in case you default later. You still have to make the monthly payments, but by making regular payments, you begin to establish a favorable credit history. Use it to pay your bills and other expenses that are already in your budget, rather than buying things you don’t need.

  • Get a credit card, even if the interest rates seem too high. If you pay your balance in full every month, the interest rate won’t matter. Plus, you can always negotiate the rate after six months of timely payments.

  • Don’t apply for too much credit at the same time. Every time you request a credit card, the issuer looks at your credit history, and each of these inquiries reduces your credit score. Also, if a lender sees you’re applying for a lot of credit all at once, they may assume you’ll max out your credit cards and not pay them back.

  • Get a car finance loan. Automobile financing is relatively easy to get because it’s a secured loan, which means that the car can be repossessed if you don’t make your loan payments. Because they have a way of getting their money back, some car dealerships and lenders are willing to give you a chance. However, if you have no credit history, you’ll likely end up with higher interest rates or be eligible for smaller loan amounts. Financing a certified pre-owned car may be worth considering.

  • If you’re turned down for automobile financing, finance the new car with a co-signer, such as a parent or spouse with a good credit history, to help you get your foot in the door. Make sure you will be able to make your car payments, though, or your co-signer will become responsible for them.

  • Finance a car at a dealership that uses a device called On Time. Although this electronic payment protection unit is used mostly by dealerships who sell cars to consumers with a bad credit history, it can also help those starting from scratch.

  • Never borrow money beyond your means. Creditors usually recommend debt-to-income ratio of 20% of your take-home pay as a maximum amount of debt you should have – not including mortgage payments.

After 12 to 18 months of following these tips and consistently paying all of your bills on time, your credit score will increase significantly, making you eligible for those larger loan amounts and lower interest rates. If you live at the same address for a long time, and hold a steady job, this will also improve your creditworthiness to some lenders.


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