No credit is not the same as bad credit. Having no credit doesn't mean that you aren't a responsible person, it typically means that you haven't had a need to establish any credit at this point in your life. Lenders understand that people have to start somewhere, sometime. They just want to be assured if they agree to offer you a loan, that you are good for the money.
People with no credit are usually younger, in college or just getting out into the workforce. We all started with no credit at some point. Welcome to the world of financial responsibility!
So, yes, heading off to the dealer to buy a vehicle with no credit is certainly doable, you just need to go prepared.
1st - You really need to have a good hold on your current financial situation. It's time to dust off the old Excel spreadsheet and re-evaluate your budget. Don't have a budget? Create one. Evaluate your regular monthly expenses. Determine how much your "extra money" amounts to. What are you spending on nights out? What are you spending per week on entertainment? How much is left over after all of your expenses?
This process will give you an idea of how much money you have available to put towards a monthly loan payment. Don't forget to include the added expense of insurance, operation and maintenance costs associated with owning a vehicle.
Be prepared. If you have no credit, you can expect to be asked at the dealership, "How much will you be putting down on the vehicle?" Don't have any money for a down payment? You'll need to start saving up. The more you put down, the better. Lenders are more agreeable to offer you a good term loan without having credit when you can pay at least 20% of the vehicle cost up front.
At the dealership (bank or credit union) you will be expected to provide proof of employment. Lenders want to be sure that you are able to make your payments. Dig up last year's tax form and have at least six months of "pay stubs" with you to prove you've had long term employment. Ask your employer to write you an "offer letter" stating that they fully intend to keep you employed for the next year as well as the salary they pay you.
Do you have any assets that you can offer as "collateral" for the loan? Many younger people don't, but if you do, it will go a long way towards helping you secure a loan.
Check your credit scores. You might be surprised to find that there is data on you even if you don't think you have a score. You need to check with all three credit reporting bureaus - TransUnion, Experian, and Equifax. Under the Fair Credit Reporting Act, bureaus are required to give you a free report once every 12 months. Your bank can also help you with this. Outside of those two, you can expect to pay for a full report regardless of what the TV and radio ads tell you.
If there is anything negative on your credit report, you'll need to address it or dispute it. Mistakes on your credit history can affect your interest rate and determine whether or not you will get accepted for a loan. Disputes are best addressed in writing and submitted to the three credit bureaus.
While you are waiting for your credit report to be cleared or while saving up for that down payment, consider applying for and getting a secured credit card which does not require a credit history to apply for. This will help you on your way to seeing positive credit changes and growing numbers on your credit report. Lenders like to see a history of a borrower of making payments.
When you feel you are ready to pull the trigger and head out for a car or a car loan, you might also want to consider looking into credit insurance. This type of insurance will typically offer full or partial payments for a specific period of time in the event of a financial crisis like illness, losing your job, etc. If you can afford it, it's a great safeguard to have when starting out.
We are ready to hit the car lots! For this article, we're assuming that as a no credit buyer, you're looking for a used vehicle vs. a new one.
Wow! "Check out that 2015 Challenger Hellcat for sale!" "I'm going to look sooooo good in that 2014 SS Camaro! "Oooooh! They've got a beautiful 2013 Chevy Silverado Hijacker!"
Yep, time for a reality check. As a first time/no credit buyer, there is likely going to be a significant difference between the vehicle you want and the vehicle you can actually afford. Remember your budget. This is likely your first car. Not your dream car.
Check around the various car lots in town, like Mike Duman Auto Sales in Suffolk. They'll have a wide variety of vehicles at their dealership. Ask if they offer (if applicable) student or military discounts? Have proof with you if they say yes. Tell the salesperson that you are a no credit/first time buyer and let them know what your budget is. As part of their job, they are accustomed to selling you a vehicle you can afford. When you find the right vehicle, they'll attempt to secure you a loan using their "go to" system. If it's within your budget and you feel you're getting a good deal at a good rate, then, by all means, jump on it.
If you think the loan terms are not right for you, seek out funding on your own and come back "pre-qualified." Start with your bank or credit union. See what terms they can offer. If the "no credit" thing is a deal breaker, ask friends or family members to be a co-signer on your loan. Now saying that, understand that if you end up way behind or ever default on that loan, they will seek out the co-signer for resolution. Awkward!
The overarching message in this article is that as a no credit individual, you CAN get a vehicle loan. It may take a little bit of budgeting commitment and homework, but the end result will be worth it.
Looking for a new ride or much needed auto maintenance? Get some great ideas from the Du-Man on how to use your tax refund on your automobile!
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