Happy Birthday! You've just reached the big 1-8. You're legally an adult—that means lotto tickets, a vote and the potential of getting a loan—maybe even purchasing your first car. What does it take? Can you even get a loan when you have absolutely no credit?
An Opportunity
One thing many adults look back on and wish is that they realized what an opportunity a blank slate was. No credit isn't necessarily a bad thing. In fact, if approached correctly, even if you don't make a ton of money, you can turn it into good credit. Yeah, it's no fun to listen to the old-timers, but they do hand out some good advice every once in a while. With good credit comes good things. One thing that can get you on your way to good credit is a car loan.
A Quick Credit 101
Here are the things that equal good credit:
- On-time payments (yes, they keep track of your payments)
- Paying off a loan
- A credit card used correctly
- Don't open a ton of accounts
- Keep your credit card(s) balances low
Things that destroy your credit:
- Consistent late payments
- No payments
- High balances
- Multiple accounts
- Collections
How to Get a Car Loan at 18
Hopefully you've absorbed some of the information above. If you didn't, try to think in caveman terms "Pay on-time. Good. Pay late. Bad." This is going to be important after you've done the research and been approved for your car loan. You'll face a few obstacles first. They'll be the doubters—the ones wondering, can this kid (yes, kid, because older people will still call you one at 18) pay off a loan? Here are some ways to get around the obstacles.
- Have Steady Income. A job is your first proof that you're willing to do the work to earn the money to buy things. Have pay stubs ready to show the naysayers (aka the doubters).
- Consider Finding a Cosigner. Cosigners are adults who will sign their name next to yours. They're saying, if this person doesn't pay, I'll be responsible and my credit will suffer. Usually they're parents. Don't let the cosigner down if you are able to get one. Remember, you're an adult now. Take some responsibility. These people are using their good credit to help you.
- Make a Large Down Payment. Large down payments make you less of a risk, which usually makes someone more willing to take a chance on you. What is a large down payment? The typical down payment is 10% of the purchase price. A large down payment is 30%, 40% or even 50% of the purchase price. It makes someone sit up and take notice.
- Look at Car Dealerships with In-House Financing. This is the buy here, pay here concept. You'll work with the dealer to determine what you can afford. With their relaxed views on credit, they'll utilize any history you may have, your job/income and the down payment to calculate the loan. You'll be shown cars within your range, and hopefully you'll drive off with one of them, plus a monthly payment amount you can pay.
Going the Distance
People like initiative, especially in young adults. If you have it in you to take a couple extra steps, you'll be better off for it. Take it upon yourself to learn a little about budgeting and money management. Yeah—blah, blah, blah—but it can help. Here's what will make you an even better candidate.
Step 1: Take a good hard look at your budget. Are you going to have student loans? Are you paying rent? You should try to track where all your money goes, then put together a reasonable budget. That will also give you a look at what you can spend on a car. You can even take your budget with you to impress a potential lender.
Step 2: Save the dream car for later. Yes, you want a Maybach. What you need is a car within your budget that's reliable. Smart decisions will make you shine, and one day you'll have that Maybach.
Step 3: Learn about the real costs of cars and loan periods. The car payment is only the beginning. Think about car insurance, maintenance and gas too. Plus you have to get new tabs every year. Your loan will include this thing called interest, and you'll need to decide how long you want to be paying off the car.
Step 4: Research car values and cars. There are places like Kelly Blue Book and other sites where you can look at car values and get reviews. It will help you avoid a dud deal.
You are 18. You can get a car. Take the right steps and go for it. And hey, maybe you can even get the parents to pitch in.
