How To Get A Car Loan With no credit check
It’s common for economic hardship to damage credit to the point where getting approved for a car loan might seem more difficult, even though a car is key to meeting needs like going to work, school and, ultimately, getting back on solid financial footing.
While it may seem daunting to qualify for a car loan with a bad credit score (below 580), there is a large network of lenders and car dealers who are more willing to work with low- and bad-credit score borrowers. If all goes well and payments are made on time, it can help boost your credit profile.
We will walk through the process of getting a car loan with bad credit, including how to prepare and how a car loan impacts your credit.
5 Steps to Take Before Applying For a Car Loan
It’s easy to feel the urgent need to get a car as soon as possible when it can be the key to getting a job faster and improving your credit score in the long run. But it’s important to be patient and do your research first by assessing your own financial situation as well as options for loans and vehicles.
Here are five steps to take before applying for a car loan.
1. Check Your Credit Score
Auto lenders who accept an applicant with a low or no credit score will typically charge a higher interest rate or have more costly loan terms in order to cover the risk of lending you money.
Your credit score is a summary of your credit history and creditworthiness that lenders use to determine where to approve you for a loan and what terms.
It’s crucial to check your credit score and credit history ahead of time and fix any errors, or try to catch up on late payments to improve your score and lower the cost of your loan.
If you have a fair or very poor credit score, you should aim to fix your credit profile by removing any errors and paying all your bills on time
Your payment history makes up 35% of your credit score and is the most important factor. Other factors that make up your credit score include credit utilization (30%), length of credit history (15%), new credit (10%) and credit mix (10%).
You can check your credit report with each of the three bureaus here. You can typically check your report for free once per year, but due to Covid-19, each credit bureau is offering free weekly credit reports until April 20, 2022.
2. Assess Your Income and Debt
Even if you have a low credit score, lenders will also look at your monthly income against your monthly expenses to weigh your ability to repay a loan. They want to see that you can make the new monthly car payments in addition to your existing debt obligations.
This will help the lender determine whether to issue the loan and how much interest, additional fees or down payment might be required to secure the loan. The higher the risk, the more you will pay in loan fees.
So before you apply for a loan or go car shopping, total your monthly debt against how much income you receive to get a better idea of how much you really can afford to pay per month.
3. Prove Personal Stability
In addition to income and debt information, lenders also look at how long you’ve been with your current employer and lived at your current address. This signals to them that you are secure in your job and settled where you live.
Employment and residency are two factors lenders use to measure the risk you pose as a borrower. You may need to show the lender proof of address and several recent paycheck stubs.
4. Consider a Down Payment is Key
It might be difficult to have extra cash on hand when you’re trying to pay bills to improve your score, but even having a few hundred dollars to put down for a car can help the lender approve you for financing and lower the upfront costs.
The ability to put a down payment—an upfront partial payment—on a vehicle signals to the dealer or seller that you are serious. Depending on how much you can put down, it can help reduce the overall size of the loan, upfront taxes and fees, your monthly payment, the length of the loan and/or the interest rate.
5. Know How Much You Can Afford
An auto dealer’s job is to upsell you on a car, so before you begin looking, it’s critical that you assess how much car you can afford. You, better than anybody, should know how much debt you can afford on a monthly basis based on how much you spend per month against your income.
Beyond this, start doing online research about how much you’re likely to pay for car insurance, registration fees, parking, gas, property taxes and other expenses that are tied to owning a vehicle beyond the loan.
Buying a vehicle is an emotional experience. Don’t get caught up in either the hype of the purchase or the intimidation of sitting in a sales manager’s office. Write the number you’re comfortable with spending on a car and stick to it. The last thing you want to do is finance a car you can’t afford and damage your credit score further.