How Your Credit Score Affects Your Car Loan Application
Applying for a loan requires validation or promise of repayment. Thats where your credit score comes in. If you dont have a credit or score, or if you have bad credit, some lenders may not approve you for a large loan, or you might find higher rates. If youre a student, first time buyer, or rebuilding your credit, that may not be the case. In any event, your credit score matters because it establishes your payment and credit history.
Lenders preparing to offer you money need to be confident the amount will be repaid within the time allotted. If you have not paid other loans or did not pay them on time, then this might affect your chances of getting approved for a loan. But it does not mean no. There is still hope. Remember, you have options at our dealership, no matter your credit score. Weve helped drivers with no credit find a car they love regardless of poor credit history.
Where Should You Get An Auto Loan With Bad Credit
One place that many people with bad credit tend to overlook when looking for auto financing is their existing bank or credit union. Why are these better than going through lending institutions offered by dealers or large banks?
If you have a good relationship and history with a local financial institution you may want to start there when you shop around. Theyll be more likely to give you a loan.
They also may know that you have a steady job already. When applying for a loan one of the most important things to a lender is the knowledge that you have the ability to pay your debt. Lastly, if youve been able to save and keep a few bucks in a savings account, theyll know you know how to manage money.
Even if youre not already a member of a credit union, take a look at ones you might qualify for. Many are open to anyone living in a specific area or those who make a one-time donation to a select charity. Credit unions are known for impressive auto loan rates and if you can open an account with a small deposit, you can improve your chances of getting a car loan.
Ways To Increase Your Chances Of Approval
When youre looking for a good deal on a car loan without a cosigner, keep these tips in mind to help your search.
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What Does It Mean To Have No Credit
You can think of credit history as a track record of how someone handles debt. It covers past debts and current status, according to the CFPB. The agency says that information is compiled in . And those reports can then be used to calculate âand to judge how likely a person is to pay back a loan in the future.
But if someone has little or no credit history, it makes it hard to do any of that, which can make access to credit an issue. Itâs more common than you might think. According to the latest CFPB research, almost 20% of U.S. adults are affected by a lack of credit history. The CFPB refers to them as being âcredit invisibleâ or âunscorable.â
It helps to know that having no credit isnât the same as having bad credit. And people might be credit invisible or unscorable for a number of reasons. You might also see it called having a thin or insufficient credit file. And it could happen for a number of reasons. Here are a few:
Can I Get A Car With A Credit Score Under 500
Yes, but it may take some work to do so. There are lenders that accommodate those with bad or no credit but they come with extremely high-interest rates and fees. A “second chance” car loan, also known as a sub-prime auto loan, might be your best option. These lenders specialize in those with extremely low credit scores, bankruptcies, or repossessions on their credit report.
Many established banks offer second chance loans, which may carry higher interest rates. You may also find sub-prime auto loans at “buy here, pay here” dealerships, where payments are made directly to the dealership.
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No Credit History You Can Still Get A Car Loan
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After comparing prices and going on more than a few test-drives, youve finally picked out the perfect vehicle for you. All thats left is signing on the dotted line. But wait, theres a problem. Youre in need of a car loan, but you have no credit history. Are you at a dead end, or can you buy a car without a well-established ?
Shop Around At Different Lenders
Just because one financial institution turns down your loan application for lack of credit doesnt mean all lenders will. Some may have less strict requirements or be more understanding of your goals and financial situation.
Try shopping around at different lenders to see which are willing to work with you. Though theres no guarantee this will work depending on what car youre trying to buy and your specific finances, its worth seeing what options are available to you.
In many cases, its easier to qualify for a loan at a credit union vs. a bank or other finance company. Credit unions are more community-oriented and willing to work with you to find a solution as opposed to treating you like just another customer.
Top 5 Credit Score Factors
Payments must be at least 30 days late before theyre reported. But, not everything you make a payment on is reported to credit bureaus. Moreover, credit scores arent all about payment history. Its broken down into five categories:
So even though 35% of your credit score comes from your payment history, its not the only thing affecting your credit score. You may be pleasantly surprised when you see that your credit score isnt as bad as you thought.
So, what credit score do you need for a car loan? Unfortunately, theres no straightforward answer, because there are always places you can go. Bad credit is anything below the mid 600s, the average is 650-720, and excellent credit is 720-850.
Just about any place will give you a loan if you have at least a 650 or above. Youll pay a higher interest rate than you would if you had excellent credit. However, everything will be feasible if you hold a steady job and choose an appropriate car within your budget. Its really not until you get below 650 that you start getting rejected.
Tread Carefully With Buy Here Pay Here
Buy here, pay here car lots offer on-site financing with less stringent credit qualifications , but they also have a reputation for being overpriced, selling poor-quality vehicles, and taking advantage of consumers with bad credit. Ask for recommendations for a dealership, and check the value of the vehicle and the vehicle history.
If you can, take a mechanic friend shopping with you to check out the car to make sure it’s in good condition.
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Here Are The Only Three Things We Require Our Customers Have In Order To Be Approved:
We understand that sometimes life gets in the way of credit and unfortunate circumstances, such as bankruptcy or job loss, can result in a less than perfect credit situation. But our goal is to get everyone in a car and driving, which is why we look at more than only your credit history.
Fill out our three-minute online application to learn more about what type of loan you can get with Birchwood Credit Solutions.Our goal at Birchwood Credit Solutions is to get you in a car and driving, so weve streamlined our process to make it as simple and hassle-free as possible for you. Once weve looked over your information and have a better understanding of your financial situation, we work with you to find a payment plan that fits your lifestyle.
Meet Minimum Age Requirements
Many car rental companies wont give you the keys to the car unless youre 25, or theyll ask for quite a bit more money just because youre underage.
Thats standard stuff. But Dollar Car Rental is one of the few companies that will let anyone age 20 and up rent a carand you can use your debit card too. Hows that for first-class treatment?
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Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our loans reporters and editors focus on the points consumers care about most the different types of lending options, the best rates, the best lenders, how to pay off debt and more so you can feel confident when investing your money.
Getting Car Finance With No Credit History
With Refused Car Finance we have all the infrastructure in place to make financing a used car with no credit history an easy and painless experience. All you have to do is fill out our short application form and we will match you up with one of our specialist lenders. We will get you the best deal possible for your circumstance, even with no credit history.
We specialise in helping you finance your next car whether you have no or bad credit. When you choose to get car finance no credit history with Refused Car Finance you can expect nothing but the best service. We work hard to get you the yes from the most suitable lender for you, so you can concentrate on finding your next car.
If youre struggling to get approved for car finance with no credit history, you could consider applying for a joint car finance application. A joint car finance application is accepted by many lenders on our panel. This type of application is when two people apply for finance on the same car and are both responsible for meeting the repayment schedule. A joint car finance application could increase your chances of getting approved for finance.
If youre struggling to get approved, you could also consider car finance with a black box.
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Find A Reputable Cosigner
One of the easiest ways to get a vehicle loan with no credit or bad credit is to find someone you trust to be a cosigner. Being a cosigner comes with significant responsibility, so this is a decision you need to take seriously. The point of a cosigner is they agree to take on the loan should you default or be unable to make the payments. In essence, you are borrowing their good credit.
This deal is great for you but potentially less great for a cosigner. Not only is the cosigner financially responsible should you default, but they are also subject to the same credit reporting you are. That means if you are late on a payment, it could reflect poorly on the cosigners credit, as well. Also, the cosigners income-to-debt ratio will be impacted by your loan. Having your loan reflected in their overall debt can affect their ability to apply for credit cards or loans.
Will Dealers Limit The Selection Of Cars If I Have Bad Credit
Very possibly. According to the used car dealership DriveTime.com, its not uncommon to hear stories about people with bad credit being shown a different selection of cars than other buyers. Ask the dealer in advance if you will have any vehicle restrictions and what type of car you can expect to qualify for.
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Maximize Your Down Payment If Possible
Do you have money saved? If you can make a substantial down payment, it can improve your chances of being approved for a car purchase. The more financial stability you can show and the less money you are looking to borrow, the better your options will be with a lender. Putting money down means less interest to pay back. It can also help reduce the chance that you become upside down in your loan. The term upside down on your car loan, refers to a situation where you owe more than the vehicle is worth.
Boost Your Credit Score
Lenders lower interest rates for borrowers who have steady jobs or regular monthly income, who have lived in one place for at least a year and who have a credit record that shows they can meet their payments.
Credit scores of 680 and higher give you the best chances of persuading a lender to waive your down payment without raising interest rates. Scores between 580 and 669 are considered subprime the lender may waive the down payment, but will certainly ding you with a higher interest rate on the entire car loan. A score that is 580 and below may cause the lender to reject you altogether.
Your first step is to straighten out your by checking its accuracy. Then, take steps to boost your credit score. Pay all bills on time, and try to pay off debts and credit card balancesor at least keep them low, around 25%30% of your total credit limit. As having a good credit score is crucial for securing an ideal loan, you may want to consider one of the best credit monitoring services to ensure your information stays safe.
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Speak Honestly About Your Financial Situation
At Birchwood Credit Solutions, we understand that a tough financial situation can happen at the most unexpected times. Were committed to working with you to find an interest rate that works with your life. By being honest, it allows us to learn more about you and ultimately, find you the right vehicle.
Alternatives For Buyers With Bad Credit
If your credit score is so low that your interest rate is unmanageable or you feel the only vehicle you can afford is unsafe, wait a few months or a year to see if you can improve your score and qualify for something better than a subprime loan. In the meantime, look for reliable, temporary alternatives to get you through the waiting period, including:
About the Author
Claire Swinarski is a writer and Wisconsin Badger based out of Milwaukee. She’s written for Vox, Milwaukee Magazine, Northwest Quarterly, Relevant and many other publications.
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Understanding Your Credit Score
Your credit score is determined by your credit history. There are a few different types of credit scores, but by far, the most widely used is called FICO . According to Secrets From An Ex-Banker by Nick Clements, this is because Fannie Mae, Freddie Mac and Ginnie Mae mortgages, which represent more than 90 percent of all purchased mortgages, use the FICO score. Your FICO score is affected by the following factors:
Do you have a history of making payments on-time, or are you usually late? Are there any delinquencies on your record, and if so, how long have they been overdue? Payment history makes up the largest chunk of your credit score. Lenders want to know you have a good record of paying back borrowed money, whether it’s a loan or credit. If you’ve struggled to pay off debt and/or loans, it’ll be reflected by a drop in your score. But the good news is you can turn things around fairly quickly â start making payments on time and your credit score will get a boost.
Amount of money you currently owe
Having a mortgage, other loans and lots of credit card debt means you probably already owe a lot of money, which can make lenders nervous. Depending how much of a monthly bite this takes out of your income, lenders may think you won’t have enough money to make your car loan payment. This part of your score also reflects for how close you are to reaching your overall credit limit – the closer you are to maxing out, the lower your score.