Navigating the world of credit and loans can be a challenging task, especially when you’re just starting out. Most young people haven’t quite figured out what it all means, or how to make it work for you. After all, they don’t tend to offer high school classes that talk about how you can get your first auto loan. If you’re ready to purchase some wheels, there are steps you can take that will help you secure an auto loan. If you approach it right, you may qualify for a loan. Work to fill that slate with excellent loans that will pay off in good credit down the road.
No Credit Doesn’t Have to Mean No Loan
There are plenty of companies out there ready and willing to help a first-time buyer get a decent auto loan. As long as you have one of the following things, you can start dream shopping. After that, the real work begins.
- A co-signer
- A job
- Paperwork
- Some credit
As for the process—here’s how to get started.
Step 1: Arm Yourself with Information
Wow potential loaners with your information. Find out where your credit score stands. Many people are surprised that they already have credit. Start by pulling your credit report—remember you get one free every year. Make sure to choose the one that includes all three credit companies (Experian, Equifax and Trans Union).
Other information you’ll want to gather includes things like W-2s, tax returns, pay stubs. Anything that reflects any income you have. If your employer is willing to write up something with your salary or average monthly earnings, then great, have them write an official letter. Gather odds and ends like character references, proof of any car insurance you might have, and even a breakdown of how much you think you can pay per month (be realistic here, even if you want that Bentley). If you’re graduating soon, make sure you can prove that. Have a job or more hours waiting after graduation?—then get a letter stating that.
Lastly, show them that you really care and are informed by gathering Kelly Blue Book values, rebates, incentives and insurance pricing. Basically, you are building a portfolio that proves you’re a great, smart, and informed candidate.
Step 2: The Co-signer
It’s completely understandable that not everyone has this luxury—someone with good credit willing to stand by and sign with you. After all, their credit is up for scrutiny too if they help you out. If you fail, they fail. However, if you have someone willing to co-sign, take the help. Then show them what a good bet you were. This method often gets better interest rates and faster approval.
Step 3: Going It Alone
No co-signer? No problem. If you pulled your credit and had none, you have a couple options going forward. You can take the time to build it a little. Get a low limit credit card and pay it off EVERY month. Yes—every single month. Get utilities in your name and pay them on time. It won’t take long to see your credit build, which can result in better loan rates.
Have a down payment. If you have 20% ready to put down, that usually makes people sit up and take notice. This is even easier when you buy a car within your price range, so be realistic. With awesome credit, your dream car will come later.
If you need a loan quicker than waiting to build or fix credit, or to save for a down payment, there are two other avenues. One option is going through a small local family bank. You may have a place that knows you or your family, and can make things happen. If you can only be approved for a small loan, you might have to choose a used or lower cost vehicle, but at least you’ll have one. Make sure to read the fine print too. If there is anything you don’t understand, make sure you do before signing on the line.
Your loan probably won’t happen overnight, but the effort will be well worth your time. A little planning goes a long way, and it’s an excellent lesson in real world living.
