How To Get Your First Car Loan
One of the most important and most fond purchases is your first car, unfortunately for many people that would like to buy their first new car, they have little or no credit history. If you are just starting out, but desperately would like to buy a new car, here are some helpful tips.
Get a Co-Signer
One of the easiest ways for you to buy a new car even if you have no credit history is to have a co-signer. A co-signer is an adult with a credit history that not only vouches for you, but is legally responsible for the car’s payment in the case that you don’t pay. Usually a co-signer is a parent, relative or very good friend. Having a co-signer will not only usually help you get approved for a new auto loan, but also help you establish credit.
Put Down a Large Payment on the Vehicle Purchase
If you do not have a credit history or if your credit is fairly new, one way banks may be willing to take a risk with you is if you put a large amount of money down on the vehicle. For instance, if a car costs 20K and you put down 10K, you will probably find a bank or two that is willing to take the risk that you won’t default. Banks use your vehicle as security. If you are unable to pay for your vehicle, the bank repossesses the vehicle and sells it to get back the money it borrowed. Unlike homes in which the majority increase in value, cars rapidly lose their value. In fact, a vehicle can lose 20% or more of its value just driving it off the lot. A large down payment can reduce the banks risk and green light your approval.
Find a Credit Union or Community Bank
In many cases credit unions or community banks that you belong to may be more willing to take a chance lending you money, especially if you have family members that use their bank or have loans through their bank or institution. Once again, banks don’t like risk, however if they are familiar with your family they maybe able to work out an arrangement. It probably will include a larger down payment than normal on the vehicle and a cap on the amount lent.
For those that would like to purchase a new vehicle and have either no credit or a short credit history, look to the above tips to secure a loan. A car loan is an excellent way to build a solid credit history. Since a car loan lasts 3 to five years, lenders can get a good sense of your payment track record.
If none of the above options work for you, then your best bet is to take some time to build credit. You can do this by taking out one or two credit cards and using them responsibly for a couple of years. Once you have built up a track record, banks will be more than happy to do business with you.