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Developing a credit portfolio takes time. It requires you to apply for and be given lines of credit by way of loans, credit cards and revolving payments and pay them on time for approximately two years to build up a good credit rating. Your payments are rated to reflect whether you pay them on time or are late. The rating places you in a good, average or poor credit rating category which lenders use to determine whether you are a good credit risk for them to grant you credit. At 18, you have not had enough time to build a solid credit rating because you cannot legally obtain credit before you turn 18.
Most lenders will give an 18-year-old an auto loan if he uses a cosigner. A cosigner is a person who has developed a good credit rating and is willing to be a co-applicant with you on the auto loan application. The cosigner's credit rating is used to determine whether to give the loan, though the loan is placed in your name as well as the cosigner's name. If you default on the loan, the lender has the legal right to demand payment in full by your cosigner. The cosigner's credit will be damaged if you default. With your name on the loan as an equal partner, your credit will begin to build each time you make a payment on the car, and if you make the
payments on time, your lending institution will report a favorable response to the credit bureaus, which begins your credit portfolio.
Large Down Payment
Another way to get a lender to take a chance on an auto loan is to save a large enough down payment to make the risk worth taking. If lenders in your area typically require 10 percent down on the vehicles they finance and you walk in with 30 to 40 percent down, you might convince them to give you an auto loan. The more money you are willing to sink into the car as equity, the less of a risk the lender takes. If you ultimately default on the loan and the car is repossessed, you do not get your equity back. A large down payment shows your confidence that you will make every payment.
Buy Here Pay Here
In some states, the dealerships themselves are legally allowed to provide the loans on the vehicles they sell. Such lots typically relax the credit requirements and charge a much higher interest than a bank would charge. The relaxed credit requirements mean an 18-year-old with a decent down payment could get a vehicle financed through the lot it is purchased from. The high interest payments means you will ultimately pay more for the vehicle than you would have paid through a conventional lender, but if you need a vehicle it is one way to get a car loan at 18 years old.