Having no credit or bad credit can make doing adult things very challenging. Many of you are probably feeling pretty hopeless with your current situation and likely frustrated as well.
If you’re feeling stuck, I’m here to tell you that there are ways that you can buy a car with your current credit score. We will also discuss the relatively simple things you can do right now and over the next 6 -24 months to quickly improve your credit to prevent credit from putting you in an unfavorable position in the future.
Deep breaths, okay let’s solve your problem.
Ways You Can Buy A Car This Week With Poor Credit
- Acquire a guarantor or cosigner for your car loan
- Find a lender who is willing to utilize alternative credit data
- Review your dealer financing options
- Borrow from your retirement
- Discuss lending options with local credit unions and banks
- Search the marketplace for alternative loans
You Can Also Make It Easier To Acquire A Loan By Doing These
- Saving for a big down payment
- Do your research and shop around
Before we discuss the details of each of these options and how not to get taken advantage of, let’s discuss why credit plays such a big deal in the borrower/ lender process.
Why Do We Use Credit In The Lending Process
In the old days, towns had local banks where citizens knew their lenders, because those lenders were their neighbors. In turn, lenders also knew who they were giving money to and could decide on their own just how risky it was lending out to their peers. Today things are a bit more complicated. You probably don’t know the owner of the bank who you are asking for a loan. You probably don’t even know the lending agent who works on behalf of the bank to protect the bank’s interests.
In this day and age it is nearly impossible to determine risk without looking into the potential borrower’s financial and repayment history. If you have no record of prior lending behavior, that makes you a blank slate, but also means that you may turn out to be a bad investment with the limited data they have. I don’t like it, but that is the way our financial system works today, data.
So if you are a new borrower, and many people in this country fall under that category, how do you build credit if this is the way that the financial system works?
There are actually quite a few ways that you can build credit as a new lender. We will get into the details further in our article. First, let’s discuss the six ways listed above for buying a car with no credit. All of which will help you establish your lending history, putting you on the way to financial freedom.
The Six Ways You Can Buy A Car With No Credit This Week
Next we’ll discuss how you can achieve your goal of buying a car and fast! A word of caution, every one of these six options is not optimal as far as the car buying process goes. They all have their pros but more importantly I want you to be aware of the cons and protect yourself from them. Here they are:
Find A Cosigner For Your Loan:
If you have friends and family who have sterling credit and who are willing to vouch for your lending trustworthiness, getting a cosigner is a great option. A cosigner is someone who’s willing to sign their name on the line of your loan right next to your name. They guarantee that if you are unwilling or unable to pay that someone with a high credit score will take over your loan and ensure it is repaid.
The pros here are that you are able to get a standard auto loan and avoid the loan marketplace where you can sometimes find predatory lenders. Your interest rates will likely be a lot lower because your guarantor is lending you their line of credit and their credit history.
Be very cautious when finding a guarantor and cosigner for your loan. Typically this is a strong personal relationship that you are putting on the line for this loan. The cosigner is really getting a very poor deal here. Your debt will also show up as their debt if they attempt to open another line of credit and in some cases their existing credit can be revoked or reduced.
Another thing to consider is the chance that you default on this loan. Your cosigner will be fully and legally obligated to take on your repayment responsibility. If they don’t, their credit (as well as yours) will be docked. I recommend avoiding this situation whenever possible. If you don’t think you’ll be able to make your payments on time then I wouldn’t get a friend or family member involved. You risk severing that relationship. I tend to find that like water and oil, friendships and financial obligations DO NOT MIX. Please tread with caution.
Find A Lender Who Will Utilize Alternative Credit Data
Before we get into the less traditional credit stats you could use, let’s first discuss the traditional ones. There are three main credit reporting companies in the United States. They are: Equifax, Experian and TransUnion.
These reporting agencies get their data from your creditors. Whether you put that new iPhone on a payment plan through your cell service provider or if you have a power bill that you pay off at the end of each month which is in your name. The credit bureaus know if you have lines of credit out and they know when you don’t pay on time.
Alternative credit would be the bills that you pay every month that aren’t necessarily in your name. For example I still share a family plan with my parents for some of my bills simply because they are cheaper that way. If you have bills that you pay on time every month that aren’t being reported to the credit agencies this could be a great option for you.
If you can find a lender that will accept your alternative credit data then great! This will solve your problem. Before you get too excited about this stroke of good fortune, be cautious. Like the rest of the items on this list you can be taken advantage of for your situation. Check out the cons to ensure you are protecting yourself.
Most reputable and big name lenders do not operate using alternative credit data. Like all things that seem too good to be true there is usually a big old catch with this option. Shiesty lenders simply seek out your personal information. Some may not end up lending you money at all and just want to use your data to their advantage. Be careful of these potential lenders.
Another type of predatory lender are the ones who offer obscenely high interest rates and/or long pay back periods. Know that with these terms you are being taken advantage of for your seemingly desperate situation and you are more likely to default or have your vehicle repossessed which will only make your credit situation worse. Others may force you to purchase loan insurance or life insurance to ensure if you croak that they’ll still get their payout.
Make yourself very well acquainted with the terms of the loan and don’t sign your name on the line or offer up any personal information if you have doubts about the authenticity of the lender.
Review Dealer Financing Options
We’ve all seen the commercials where car dealerships tout their “no credit no problem” policies. These can be a great opportunity for the right buyers, however, you still have to be cautious giving these dealerships your business. Again there is usually a catch here! If this is a reputable dealership it might pay to make a call to them and ask to speak to someone in their financing department.
What to ask:
- Do you require a cosigner?
- What are the terms under which you loan to someone with no credit?
- What are the terms and interest rates of this loan?
- What is the down payment?
- What is the payback period?
It is usually a lot easier to spot a predatory dealership than it is to spot a predatory lender. It is also super simple to give a dealership a phone call and discuss your options. Before you have them run a credit check for you should make sure you are ready to buy, running a credit check can ding your credit though there are ways to mitigate how much your credit decreases through credit inquiries.
The downside here is that there are usually bad lending terms associated with these loans. Or there may be some other form of catch that they don’t tell you about on the commercials like that you may need a cosigner or some form of collateral other than the car itself. You can easily gather this information by reading online reviews on the dealership or by giving them a call and discussing financing with a qualified employee.
Utilize Local Lenders Like Credit Unions And Small Banks
Most financial institutions utilize the same processes for lending. They use the same information from the same three credit bureaus and you’re going to be getting essentially the same results for you depending on where the bank sets its acceptable risk lending standards. In some cases, however, you can find local banks and credit unions who take a more human side to banking.
In these special cases where you find a local bank that is willing to work with you, they will discuss why your credit situation is where it is and will look over your financial information like paystubs, bank accounts and payments that you have successfully made on time every month that may not show up on your credit report.
Local credit unions are a great option for those of us who may not have established any credit yet. In some special cases these credit unions will look more closely at your loan application and decide that while you may not have credit, there are other ways you have proved your financial responsibility.
For those who have bad credit this is likely not a good option for you. These banks still tend to stay away from high risk lending situations.
You Can Check The Loan Marketplace
As with everything nowadays, there are alternative solutions to your lending needs. Instead of your lending options being restricted to only banks and credit unions you can buy and sell loans on an online marketplace. Yes, there is a marketplace to buy loans from private lenders. Be careful which lenders you choose to give your personal information to, in some cases you may find people trying to prey on desperate borrowers.
Going with a broker is usually your best bet in these instances. Not all lenders will work with zero or bad credit situations and not all will lend for auto loans. A good broker will know the most effective ways of providing their clients with credit and are inclined to be successful as they usually work at least partly on commission. Some brokers will also not deal in auto loans or work with borrowers with less than ideal credit situations. Be sure to use a credible broker, because they will be in possession of your sensitive personal data.
This is a great option for borrowers who need to utilize alternative lending options. This is one of the best ways to find a lender who will work with a borrower who has no or low credit. It is also really easy because the broker is going to have done a lot of the heavy lifting for you in this scenario
You are using a third party to process sensitive personal information so you have to be really careful which broker you go with. It is encouraged to ask your broker how they distribute this data and what happens to it once the lending process has concluded.
Borrow From Yourself
As a last resort you can also borrow money from your own retirement account. If you’ve been a good little saver but you have no credit this can be your best option. This isn’t technically borrowing from yourself because the fund still has to approve your loan but you would be tapping into your retirement account.
Depending on who your retirement account is with, this can be a really simple process and a fantastic option.
You may find a substantial penalty when you borrow these funds. It again all depends on who you’re dealing with. Here are the most popular retirement options and what you can expect
Roth IRA: You can remove your funds from this account at any time. So it is really really easy to access this money. You don’t need to go through an approval process. You cannot withdraw the interest that this money has accumulated though which can be a huge loss depending on how long you’ve been saving.
401K: The terms of this loan lay in the hands of your employer. They are going to decide how much you can borrow and what the interest rate will be. If you somehow find yourself separating from your employer this can cause issues. In some cases, you will be required to expedite your repayment or suffer a 10% penalty. Be careful here and be sure to read the fine print. Even if you are laid off at no fault of your own you can be held responsible for repayment.
Reasons To Buy A Car With No Credit Instead Of Waiting To Build Your Score
- Buying a car will help build your credit
- You can always refinance your loan down the line and get a better rate
- You really can’t wait any longer to buy a car
Watch Out For:
- You will likely have a high-interest rate loan, which can be refinanced once you’ve built credit. Know that you will be spending a pretty penny in interest going into this purchase.
- Higher than usual down payments. This comes with the territory of higher risk loans.
- Predatory lenders. If a dealership is asking you to put down money before ever seeing the vehicle you should walk away. Trust your gut. If you think the lending terms seem scammy they probably are.
For some of you, waiting is an option. I think a lot of us have realized here in 2020 that a car isn’t as essential as we had previously thought. Whether you’re working from home or have ulterior modes of transit (I’ve been biking to the grocery store and it rocks), there are a lot of good reasons to wait to buy a car until you are in a better credit and/or financial situation.
Can It Wait? Consider Building Your Credit First In 6-24 Months
You can absolutely build a substantial amount of credit in this time frame.We’ll get into how you can most effectively do this below. There are a lot of really awesome reasons to wait on buying a car if you need to build credit and have the time.
Reasons To Wait:
- You will save a ton of money if you wait. Even if you manage to avoid the predatory dealerships you are likely going to be paying a ton of money in interest. Some no credit loans have rates upwards of 20%. TWENTY PERCENT.. That ought to be illegal! It is a good idea to wait if you can otherwise you can end up spending close to as much in interest as you did on the car.
- You won’t have to put down as large of a down payment, but you still should! You should aim to put as much money as you can upfront on the car to save yourself the money in interest. If you want to keep your down payment low and keep your funds liquid, your best bet is to shop around. Ask the dealership what a typical down payment looks like for someone with your current credit.
- You can avoid predatory lenders. There are a lot of people in this world who unfortunately make their living scamming and taking advantage of others. Some dealerships will ask for you to put a holding fee on a car before you ever step foot in the dealership
How To Quickly Establish Credit
There are a lot of hoaxes on the internet where you can magically raise your credit score by filling out a form and paying a sum of money. These are exactly what they sound like, a scam! While I wouldn’t say there are too many credit establishing “hacks”. I will tell you that there are some simple and safe ways to quickly put yourself on the track to better credit. Here they are:
- Become an authorized user on a friend or family members low balance and paid off on time credit card
- Open a secured credit card
- Take out a credit builder loan
- Make sure you’re getting credit for your cell phone and utilities
Becoming An Authorized User On Someone Else’s Credit Card
Did you know that you can be added to a friend or family member’s credit card as an authorized user? You of course want to make sure this account carries a low balance and has a positive payment history. This is a good option if you have a close personal relationship who would be willing to put themselves on the (credit) line for you.
A word of caution. Be careful who you ask for this favor because sharing something like this can make a lot of people uncomfortable. A parent, other family member or lifelong friend who is trustworthy and financially responsible is your best bet. This can be messy if that person defaults or makes a late payment. In the event that this occurs, you will be negatively docked for late payment as well. Your name is on the account and in some cases you will be legally responsible for paying any balances that this person accumulates. Careful here people.
Open A Secured Credit Card
I know what you are thinking! How am I supposed to open a credit card when I’m reading this article because I have no credit. There are several credit cards that are specially designed for people in your position. A secured credit card is going to be the way to go for most of you.
A secure credit card is designed for people who have no or bad credit and are trying to better their current credit situation. These cards are similar to a standard credit card, but do require an upfront security deposit to ensure the company’s interests. That security deposit is typically refunded as you demonstrate financial responsibility through carrying a low balance and making timely payments.
If you don’t have the funds or simply are against a security deposit you may find luck with Petal Visa Card or the Deserve Classic Mastercard
Take Out A Credit Builder Loan
A credit builder loan is somewhat similar to a secured credit card in that it solely exists for those with no credit or bad credit. These are small loans usually in the area of $300 -$1000 dollars. Unlike a traditional loan.. It isn’t really a loan? How it works is the creditor holds onto the funds from the loan until you make all of your payments. So in a way it is sort of like both a documented version of a savings or retirement account that builds credit.
You don’t get access to the money until you finish making the payments. There are flexible time frames available with these loans and they can range anywhere from half a year to several years. As you make these payments, your “lender” reports your payment history to the credit bureaus until your last payment is made.
At that time you will gain access to whatever form of funds you agreed to whether it is a liquid cash savings account or a portfolio of investments like a CD.
Check Your Credit Report And Ensure Your Monthly Bills Are All There
The credit bureaus do a decent job of ensuring they collect as much information as possible, but considering they do this for over 300 million Americans you should understand that they aren’t always accurate. Unfortunately it becomes your job to make sure the data being reported on you is accurate.
An easy way to raise your credit score is to provide the bureaus with the data they haven’t been collecting on you like your timely cell phone service payments as well as utilities and cable and internet payments.
You may also find data errors where bad credit is being recorded due to an error in the system that is linking you to an account that you may not be involved with. Clearing up these issues can raise your credit score instantly and pretty significantly in some circumstances. If you don’t want to be bothered with this process of expungement you can hire a credit repair company to do this for you. Which leads us to our next topic.
How To Quickly Repair Bad Credit
- Consider using a credit repair company
- Correct by reporting any data that is in the credit reporting system that is invalid
- Pay all of your bills on time
- Put all of your debt on minimum payments
- Make sure you’re getting credit for your cell phone and utilities
- Leave your existing credit accounts open
- Apply for new credit (that you are eligible for and need)
- Reduce your debt to income ratio
- Have a good mix of debt
Pursue Credit Expungement Or Use A Credit Repair Company
No matter who you are you should definitely be checking your credit report quarterly. Your credit determines your buying power and even negative credit that was made at no fault of your own can take a bit to work itself out. You don’t want to be heading in to inquire about a loan when you find out about fraud.
As stated above in our section for no credit readers, you can find errors in the credit bureaus data. In some cases they are not properly recording things like rent, utilities or cell phone bills and you may be able to provide that data to them for an instant credit boost.
In other cases they are falsely reporting credit on your behalf. This could be positive or negative. If they think you are accountable for a timely payment that is raising your c3redit, that’s great, but be careful if you decide to leave that alone. At some point those could become deductions if the account they think is yours becomes less on time with payments. Obviously you want to remove any dings to your credit that are not related to you.
You can dispute your credit report in a few ways.
- Deal with the bureaus yourself
- Hire a credit repair company to do it for you.
You can order a free credit report from each of the three bureaus every 12 months, if you want to check that information more frequently, unfortunately you’re going to have to pay.
If you intend on dealing with the bureaus yourself, you’ll need to tell them in writing which information that you think is inaccurate. It is advisable to print out your credit report and highlight or circle the items you are disputing. You are going to send this data to the bureaus by official mail carrier service. That’s the jist of it. If you want more detailed and legal information on this process check out this link. https://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports
This is a sample dispute letter that may also be useful
Alternatively, you can hire a credit repair company to do this process for you. On average users see about a 30 point raise in credit, which isn’t bad. Here’s the catch, it is pricey and is typically a monthly service that will cost between $100 and $400 per month. Because it is a monthly billed service people tend to think that their score will continue to increase, but I tend to find that results steeply drop off after the first few months so be sure to check up on this and cancel when needed.
Pay Your Bills On Time
Okay so this is pretty straight forward, right? Great, we won’t spend too long on this one.
If you are trying to improve your credit and are following the items in this article, but you are not paying your existing bills on time. You’re really taking one step forward and two steps back. Life happens.. Some months it can be tough for the average American to make ends meet. I have been there.
Something you can do when this happens is to call the company and ask for an extension. Personally I’ve had my electric bill extended by the city several times in my earlier years. In most cases these extensions are not reported to the credit bureaus. It’s better to call and ask for help if you need it. You might be surprised what some companies can do for you.
Put All Of Your Debt On Minimum Payments
I’m borrowing this one from the great Dave Ramsay, though this is common knowledge. The best way to start to tackle your credit issues is to ensure you are paying your liabilities on time. This includes credit cards, student loans and doctor bills. If you’ve been unable to meet the high payments being demanded by your creditors you should call them and see what you can do to make your payments more manageable, trust me they would rather have some money than none.
If you have outstanding debt, this can actually be really great for helping build your credit back up. Start making timely payments and your credit score is sure to go up.
Don’t Close Your Lines Of Credit
This one may surprise you. If you didn’t know, it negatively impacts your credit when you close down your existing lines. There are a couple of reasons that this happens. One of the data reported to the bureaus is your available credit to debt ratio.
It looks really good to lenders if you have the option to have a ton of debt, but you’re not really using it. When you close down a credit card that you are not using you’re making that ratio look a lot worse on paper to a potential lender.
Apply For New Credit
If you need it, you should apply to open new lines of credit. This can be in the form of a credit card or a personal loan. As stated just above, having lines of credit open that are not carrying high balances is really good for your credit score. It makes you look financially responsible, having the ability to spend that money and refraining from doing so.
Some great options for those with bad credit include using credit builder loans and secured credit cards. Check out the Visa Petal Card or the Deserve Classic Mastercard if you aren’t wanting a credit card that requires a security deposit.
Reduce Your Debt To Income Ratio
Your debt to income ratio is the amount of debt that you have when compared to how much you make. You can calculate this by simply adding up all of your debt and dividing it by your gross income. Your gross income is the income you claim before taxes are taken out. A lot of times this is taken as a monthly function. How much do you owe a month divided by how much you brought in before taxes.
So you can accomplish reduction of this ratio in one of two ways. You can reduce your overall debt by paying things off, or you can bring in more money. Well, easier said than done but typically the debt is reduced as a function of making more money.
If you work a full time job, consider asking for a raise or shopping around to see if there is an employer out there who is willing to pay you more. If you don’t want to make a change to your day job, consider getting a part time job if you have the time. Waiting tables, walking dogs, house sitting plants, taking care of lawns and coaching a youth sports team are all great ways to earn some extra money.
You can also make an online business platform or get involved with Amazon. There are tons of ways to make extra cash when you need it.
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