Getting a car loan - no credit history

[shikimo 8]

There are a lot of factors that go into loan underwriting: credit score matters, but the whole equation is complicated (income, debt-to-income ratio, time with current and previous employer, current and previous address history, rental/mortgage history, other car loans, even IRS meddling) for all but the most obvious safe bets (and they're the only ones who get the 0-1% financing that dealers sometimes advertise, and the only kind that makes good financial sense).

In any case, a high-interest car (or any other kind of) loan is not a financially sound way to build credit: a good rule of thumb is that if you're applying for a loan and you're "just trying to squeak through" the application process, it's probably time to rethink the loan because you're going to pay too much interest. You can build your credit for a couple of years using your credit card and paying it off each month (thus paying ZERO interest and maybe even earning cash back or airline miles or some other benefit), and then later go to get a car loan with two years of both solid credit and stable employment/rental/utilites/etc. history. At that point it'll be a slam dunk 10-minute approval for the dealer's best rate.

...and the fact that you have good revenue makes this all doubly true! I can see why a person with spotty credit would take a bad car loan because s/he has no choice and needs a way to get to work, but when you have good revenue...well, let's just say that if you HAD to have that particular car RIGHT NOW, cash is the only smart way to do it.

Gosia & Tito is right: that bit about the in-state license is BS. I suppose a dealer could choose not to sell to you for that reason, but there is no law against it. I think most states will require you to have an in-state license to register it, though, so in the long run I guess it's kinda functionally true in the sense that you have to legally register your car in the state where you live within a certain number of days of moving there.

[lil2be 11]

We've talked about it and it looks like we're going with paying it off (or at least, most of it off) in cash. We've just gotten our first credit card so hopefully we'll establish some history there, and at least be able to rent an apartment. On Monday I'm calling credit unions around. I'm not keen on the idea of borrowing money but it seems like it's the only way to get a credit history.

New twist though: car dealer says he can't sell us the car without a license from that specific state. Anyone dealt with this?

Where are you going to buy a car and your driver license is matter. Different state has different state laws. Like in MI, there is no fault accident. Therefore, you have to be aware of the state law.

When I first bought my car, I had established about 6 months credit history with all credit cards and charges. I got a loan with higher 9% direct loan from toyota. My second car cost me $26000+ taxes + dealer fee and etc with 6% interest from Ally.

My suggestion is to wait a bit. Or talk to other loan company/bank. You might get a highest rate but you will need that to build up your credit. It doesn't matter how much you earn monthly/yearly. It is the combination of income, length of credit history, on time/late payment, total of credit lines and etc.

Good luck.

[Ralph and Meghan 19]

I got a car loan trough my dealer. Needed a car for my daily drive to work. I did a 10% down payment and i didn't had any problems getting the loan. The dealer told me they handle these cases more often and they know how to handle those so i went with the dealer to get a loan. Credit is something typical American. You have to build it up so even if you pay a little higher interest for your first car after a year or two you can refinance the loan and prob will get a lower interest rate.

Edited June 22, 2014 by Ralph and Meghan

[Krikit 1,164]

One abusive post has been removed. Any further such posts will earn you administrative action.

[loladolly 51]

The credit/loan system is a shame here ! It is not giving any chance to "new people", talk about the land of opportunities.... In two words, IT SUCKS and i am sorry you are going through this.

I am dependent on my husband for everything, he added me to his credit card accounts so now i have some sort of history. When he got his last car loan last year they would not allow me on it because of my no history he would have gotten a shitty rate.

I am happy i am going to be included in our mortgage for our house. oh well i could fuss about this system for hours so i stop now...

[Cathi 5,747]

a co-signer. When my husband bought his first car he was in the same situation, new credit card, good paying job, banks wouldn't touch him. I co-signed for him and he was able to purchase the car,

[Cathi 5,747]

And just to add(I couldn't edit my previous post), less than a year after he purchased his car he was able to get a mortgage using only his salary and his credit. We move in Wednesday. He arrived in the US in October of 2012, so all of this in a year and a half. So take heart, things will get better.

[AmyWrites 593]

Thanks for the advice everyone. On Monday I'm going to be contacting various credit unions here, and another bank we have an account with. We tried to finance through our dealer as well, but I don't know how that'll go. We will offer more money upfront but I don't know how and if that'll affect anything.

I guess I feel sad about it because we're thinking of starting a family soon, so maybe buying a house or something?We also thought good income + no debt = good credit. It's a big issue where we are now to not have credit, because to rent an apartment, we need a credit history, but we need a car to rent a place because nothing here (rural Iowa) is within walking distance.

[cdneh 3,112]

I ended up financing my car through the Toyota dealer, with my MIL as the co -signer, almost 5 years ago. My husband, bless his heart, had no credit rating whatever. Never even had a credit card in all his 62 years. Strictly a cash on the barrel head kinda guy. No credit rating, I was told, is worse than a bad one in many ways.

I was annoyed though, to discover that although I had bought 3 new cars in NZ during my working years, all through Toyota, even insured through them, it didn't matter. And that stellar 5 star credit rating didn't mean squat here. They were happy as Larry to track down my work history there, every one of my referees was called, but they insisted that they could not do that with my credit history.

The car will be paid off this year, the interst rate sucked, but really what can you do otherwise. I have a good rating now, for what it's worth. He has a credit card now as well, although if he ever opens his wallet to take it out, I will fall over from the shock. Old habits

[Ryan H 3,812]

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Edited June 22, 2014 by Ryan H

[Avery Cates 1,141]

Thanks for the advice everyone. On Monday I'm going to be contacting various credit unions here, and another bank we have an account with. We tried to finance through our dealer as well, but I don't know how that'll go. We will offer more money upfront but I don't know how and if that'll affect anything.

I guess I feel sad about it because we're thinking of starting a family soon, so maybe buying a house or something?We also thought good income + no debt = good credit. It's a big issue where we are now to not have credit, because to rent an apartment, we need a credit history, but we need a car to rent a place because nothing here (rural Iowa) is within walking distance.

Wait a year or so before trying to buy a house. With poor/no credit, most mortgage brokers either won't look at you, or will want a very high down payment.

[AmyWrites 593]

Wait a year or so before trying to buy a house. With poor/no credit, most mortgage brokers either won't look at you, or will want a very high down payment.

That's the plan, I just didn't know if it was enough time to establish a credit history.

[Avery Cates 1,141]

That's the plan, I just didn't know if it was enough time to establish a credit history.

I opened a credit card with my bank about a year ago. My credit rating is now over 720.

[whysodifficult? 31]

Put down more money and finance the remainder over a shorter time. There are banks that will do it.

[rlogan 2,036]

If you have that much cash just buy a good used car. I haven't spent more than $2,400 on a car in 30 years.

People over-hype the maintenance and repair issue. They really just want new cars so they overstate the problem. A car depreciates almost 20% just driving it off the lot. Don't buy one without looking into the maintenance and repair histories for the models you are interested in. Some are good for 300,000 miles without any major repairs.