It's tough to get credit, especially when you don't already have credit established. Automobile loans are secured, so even if you have no credit history, you may have a better chance of getting a car loan than an unsecured personal loan. There are strategies you can employ to help you get that first-time auto loan and not have to pay more for it.
Building a Credit History
Start building a healthy credit history by paying all your bills on time. Another way to establish credit when you have none is to get a secured credit card from the bank where you do business. Your credit limit will be whatever amount of cash you deposit. You prepay for the credit you use, but the bank will report your payment history to the credit bureaus. Although retail credit cards typically offer low credit limits and charge high interest rates, this is another way to build your credit. Avoid paying high interest rates by paying your balance in full each month. Make certain the creditor reports your payments monthly to a credit bureau.
No Credit Auto Lender
Apply for a car loan with a no credit auto lender. Getting approved for a no credit loan actually helps you establish a credit history. The major disadvantage is the lender will charge you a higher interest rate if you've never had a car loan before. Lower the risk to the lender by making a down payment on the loan. Some no credit auto lenders will require that you make a down payment. Putting money down lowers your monthly payment, making the loan more affordable. It also may get you a lower interest rate.
Co-Signer
Parents often co-sign for young adults applying for a car loan for the first time. If the co-signer has a high credit rating, you will qualify for a lower interest rate on the loan. The person who co-signs a car loan for you is responsible for making sure that the monthly loan payments are paid or else suffer negative consequences to her own credit score. A co-signer must be financially able to pay off the debt if you default on the loan. Failure on your part to make the monthly payments means the creditor will go after the co-signer for payment of the debt.
Other Options
When applying for your first auto loan, shop for a used vehicle. Your payments will be lower because you won't be borrowing as much money. Taking a short-term loan will cost you less in interest and allow you to pay off the debt more quickly. Another strategy you can use to qualify for a loan is to open a savings account. This shows a potential lender that you are putting money aside and have cash reserves available to repay the debt. Another option is to join a credit union, where you may have an easier time getting approved for that first-time auto loan.
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