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Begin by gathering some documentation, next ask for help from family and friends, and finally ask the bank or car dealer for a loan.
A major factor in getting approved for a car loan is your credit history. If you do not have any credit history, the lender is going to look in other places to verify if you can afford the payment. And confirm the likelihood you will repay your debt. Gather the following documentation to substantiate your history.
- Copy of your bank statement
- Documentation of any reoccurring bills such as a utility or phone bill
- Proof of employment history, multiple pay stubs should work
It is important to have all the documentation listed above. Credit history is not required to open a bank account. however it will confirm if your account is in good standing. Utility and phone bills are also easily set up without credit history and can provide proof to the lender that you can pay a reoccurring bill on time. A source of steady income is also important. The longer you have been with a single employer the better because to shows the lender you can hold a job.
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Ask Family and Friends
Family and friends are a great place to start looking for help financing a vehicle when you have no credit. If they do not have the ability to give you the full loan, it might be possible to have them co-sign on a loan. A co-signer is an individual other than the borrower who signs a promissory note and in so doing assumes equal liability for it. To put it simply, you are
using someone else’s credit score to purchase your vehicle. The bill comes to you, and if you don’t pay, the cosigner has to pay or their credit will suffer. A late payment cannot only damage your family member’s credit but also your relationship. If you do get the full loan from someone you know, layout a solid plan of repayment so the situation is less likely to get sticky.
- Agree to a set interest rate and time frame of repayment
- Print out an amortization schedule, bankrate.com has a free calculator
- Always make your payments on time and do your best to pay off your loan early
Start at the bank or credit union where you have an active account. They will have easy access to your account history and will be more likely to give you a loan if you have a prior relationship with them. If you do not have a bank account, set one up as soon as possible. Find help setting up a bank account by reading “How Can I Easily Open Bank Accounts”. You are more likely to get a better deal at your bank than a car dealership. However, if your bank is unable to help you, try the car dealership. Whether you are at the bank or the car dealership, have the documentation you gathered from the list above ready to go.
A car loan can be complicated to obtain without prior credit. Building good credit is vital for your financial future. For great tips on building good credit check out “How to Build Credit”. With a little planning, you will be driving your new set of wheels in no time.