By David Pilley on August 31, 2011
.jpg.aspx?width=75&height=75) Need a car but you don’t have any credit? No problem. Though many car salesmen and most lenders prefer you have some sort of credit history, it’s not impossible to get a car loan if you’ve never swiped a credit card. You may need some alternatives or a sizable amount of cash, but in reality it is easier for someone with no credit history to get a car loan than someone with poor credit.
You may not have a credit card, but it’s highly likely you have a debit card for your checking and savings accounts. Having a healthy checking account is a good alternative to credit, as it shows you have some background with spending money (and also because you simply have money). Creditors view a lack of credit history as a risk because they don’t know anything about you, but if you’ve been in good standing with your checking account, your bank may approve you for a loan. The longer your account has been open, the better, but make sure you don’t have any recent overdrafts or bounced checks.
Even if you don’t have a credit card, you may already be familiar with balances and monthly payment plans. These may be forms of alternative credit, and they include rental payments on your apartment, utility bills, and even your cell phone. If you can show a history of these payments on time, lenders will have more confidence in approving a loan for you. You might also consider asking your employer for a statement of proof of employment. This will reveal your stable source of income, and lenders will be less wary now that they have a better understanding of who you are.
A car loan is a secured loan, and the vehicle is part of the collateral. With any loan, if you can immediately pay a portion of it, the lender may have further confidence that you will not default. Making a large down payment is another way to get a car loan with no credit history. With a mortgage loan, an acceptable range is between 10% and 20% of the loan’s principal, and the same can be said for a car loan. A car loan is much less than a mortgage, though, so it would be better for you if your down payment could be closer to the 20% range. Coupled with proof of your employment and income, a down payment will show you have something invested in the purchase, and you also intend to pay back the loan in timely increments.
Finally, you may be able to get help from a friend or family member. If someone you know has good credit, ask him/her to be a cosigner. You must make sure, though, that you will be the one responsible for paying back the loan. If you default, both you and the cosigner will get penalized, and damaging your friend’s credit will have detrimental effects on your relationship. Alternative credit, proof of employment, a down payment, and a cosigner may all be different ways to get a car loan if you have no credit. The crux, as always, is to make sure you are responsible for the repayments, and make sure you can handle the amount of money.
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