what you need to know about getting an auto loan without any credit
Why is it that those with other than great credit history have a problem with establishing auto credit? Why are these buyers required to have, at a minimum, another credit card with a strong payment history qualify for a conventional auto loan?
What we know about No Credit Auto Loans
This is typically case for most in this situation and we’ve dedicated years to helping buyers with poor and bad credit find new car dealers that will offer them the best opportunity to buy and be approved for an auto loan.
Through the years thousands of question from consumers with less than great credit have asked us how to get an auto loan with no credit history. They want to know how they can achieve that financing though a conventional auto loan with just a solid payment of history with a credit card.
The explanation may sound simple enough but it’s not as easy an answer as many might think. There are many factors involved. This is how we break it down to our customers:
High Risk No Credit Auto Loans
Dealing with a subprime lender is often costly and many wonder if it is a necessity to apply through these lenders to get a loan. They’ve made regular payments on their credit card, even if it is a secured one. This is supposed to help build their credit. They’ve even made on-time cash payments for vehicles in the past. Yet, they are still subjected to the sub-prime lending at high interest rates.
The fact of the matter is that while doing these things will boost their FICO credit scores, they do practically nothing to help with the auto credit of the people financing the vehicle. This may seem like a sham but there’s some rather solid reasoning behind this.
Credit Cards are a type of revolving credit. With this type of credit if the balance isn’t paid off every month the account holders will be required to pay the minimum amount with the remainder being carried over as part of the balance next month.
Auto loans work a little bit different. These loans are an installment type of credit. These payments are fixed and a payment contract is signed. The amount of the loan includes not only the initial or principle amount of the vehicle itself but also the interest. These payments are set at reasonably equal amounts each month for the duration of the payment contract.
A big difference between installment credit and revolving credit is that installment loans are often set for typically higher amounts than the average revolving credit. The amount of the installment loan may be several thousands of dollars higher than that of the base credit limit of a credit card. This renders a much higher payment amount where the account holder may be making several payments a few hundred dollars monthly as compared to that of a minimal payment amount of a fraction of that. With the revolving credit account, the amount owned accrues interest where the interest accrued on an installment loan is based on the total amount.
This amount of lessened flexibility in payment means that the account holders must be more disciplined in their payments. Auto loan payments that are missed don’t revolve into the next payment cycle like credit cards allow. They just get stacked up. Sure, there are extreme circumstances where a skipped payment allows itself to be caught up in the next payment but in most cases, think generally makes it more difficult for buyer to make that payment.
When applying a customer’s credit scores, typical FICO and other scorers will observe both revolving credit accounts and installment accounts. Those that lend money for the purpose of buying a vehicle will look at these things as well but mostly as a means to establish income to debt ratios. The difference is that they will pay close attention to how applicants have established specific credit on installment loans, specifically other car or property loans. So while having a good payment history on revolving accounts will generally help buyer in establishing a good credit standing, this activity doesn’t carry much weight when applying for an auto loan.
It’s because of this reason that even those auto loan applicants that have strong credit scores will be turned down for a decent auto loan. Their scores may be high but their payment history on installation loans may be hindering them. This is actually a common occurrence for those that pay cash outright or finance through other means, such as a business loan. When no actual car payment history has been established, finding financing could be difficult.
Auto buyers that find themselves in the situation where a lack of installment payment history has been established may have to find themselves building that auto credit with a lender that is willing to take that risk.
At this point, you may be questioning how you’re supposed to establish that kind of payment history if you’ve already been turned down. Perhaps you need to find a dealer that has built a relationship with subprime lenders so that you can establish your auto credit history.
The answer to these questions is right here waiting for you.
What We Do
The first thing that you should know that is that there is financing options for just about any type of credit. As a sub-prime buyer, you may have to make your purchase from a dealer that is a buy here – pay here type of dealer. Keep in mind that you are trying to establish a conventional auto payment history using unconventional means. Most of these types of establishments don’t report your payment history unless you default on the loan.
Next, we are here for you through the entire process. Our company specializes in good customers who have been dealt a bad break on their credit. We’ll help you find conventional dealers that will help establish or repair your car payment history. We work with dealers and lenders from across the country to give you the best opportunity to be approved for an auto loan.
When you’re ready to make that step towards being able to finance your next car, fill out the online application on the website to be approved.
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