First Time Car Buyer with No Credit: Tips for Success

You want to buy your first car, but haven't established credit. These tips will help a first time car buyer with no credit find and qualify for a car loan. Keep in mind that no credit is preferable to bad credit; your goal is to establish a credit record and finance your new ride. The Federal Trade Commission recommends that you shop and compare financing options before you shop for a car. Lining up your financing before you buy can help with negotiating a great deal on your car.

Dealership Financing Options

Car dealerships want to sell cars and typically offer in-house financing to help their customers purchase cars. Before shopping for a car, talking with the dealership's finance manager is a good place to start. Finance managers can tell you what options are available and credit requirements for each. In general, borrowers with no credit can expect to pay higher interest rates than those with established credit. The higher your interest rates, the higher the payments, so you'll want to find financing with the lowest interest rate possible. If the dealership offers you more than one type of car loan, compare costs and terms before choosing a loan.

Car dealers may offer a "buy here, pay here" option, but these loans typically carry high finance charges and you'll likely be required to make payments at the dealership. U.S. News notes that while this option can help you establish credit and get a car, it's best not to choose a financing option for convenience or out of desperation. Putting off your car purchase in favor of researching your financing options can help you save in the long run.

If a dealership cannot provide financing, there are other options to consider.

Options for a First Time Car Buyer with No Credit: Cosigners, Down Payments and Online Financing

A family member may be willing to cosign for your car loan, but there are risks involved with getting a cosigner for your loan. If you cannot repay the loan, your cosigner will be held fully responsible for making payments. If you are sure you can afford to make payments on a car loan, a cosigner can help you establish credit with a car loan. A cosigner provides their good credit to help you qualify for your auto loan; as long as you make payments on time, you'll build a good credit history.

If you have savings, making a large down payment may help you qualify for your car loan. Having "skin in the game" indicates to lenders that you'll be less likely to default on your car loan. If you don't have a lot of cash available, borrowing from a close friend or family member can provide the cash you need and may be a favorable alternative to using a cosigner.

Shopping for a car loan online is a good way to compare loan offers without the pressure of going to a dealership and being pressured to buy a car and take out a car loan. Buying a car is exciting, but it's easy to lose sight of your best financing option when a dealer pressures you to buy and borrow on the spot.

Things to Know About Car Loans

You may be tempted to take the maximum loan term offered, but this will cost you in the long run. The longer you take to pay off a car loan, the more likely you will owe more on the loan than your car is worth. Your risk of default may also increase over a longer repayment period. If you have to take a long repayment period in order to get affordable payments, you may want to put off buying a car until you can afford a shorter loan term.

Excitement and sales pressure can cloud your judgment about how much you can afford to pay for a car. Shopping a car loan and getting approved before you shop for vehicles establishes how much you can afford to pay and provides negotiating power when you're ready to buy.

Remember that your "dream car" is not the only one out there. Check your emotions at the dealership door and don't fall for sales pressure such as "You need to act now. This is the last one of these." Don't be pressured with claims of a great deal that's good only for today. Buying a car is a major investment and you'll want to be sure you've made your best deal on your car and car loan.

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