Madison Credit Union Blog

How to Get a Car Loan with No Credit History – All the Information You Need

Get a Car Loan

Job seekers, who face one rejection after another because they lack experience are often left to wonder in frustration, “How can I gain any experience if no one gives me a shot?”

There is a similar frustration for young adults when it comes to credit. How can one establish a credit history, proving they will pay back their debts, if no one will give them a loan in the first place?

Many people stress over whether they have good credit or bad credit, but it becomes even more stressful when you don’t have credit at all. When it comes to lenders, a nonexistent credit history lumps a borrower in a similar category as those with bad credit, which seems unfair but it is a reality. If lenders cannot see evidence that you have a track record of paying your debts, they see you as a risk.

For young adults who need to purchase a car, either to commute to college or work or both, this can be particularly frustrating. A car loan may seem impossible to secure without an established credit history.

While it is difficult it is not entirely possible, and we will walk you through what you need to know about getting a car loan with no credit.

Option 1: Finance through Your Bank or Credit Union

Since most young adults have a checking and/or savings account, even if they have not yet opened lines of credit, you can go to your bank and ask if you can prequalify for a car loan, which in turn will dictate your budget when you go car shopping.

Credit unions often offer financing options with lower interest rates, so if you can qualify for membership in one, this can be a great place to start. In addition to banks and credit unions, you can also investigate online lenders.

A word of caution when it comes to any online lender is to research thoroughly and look at customer reviews. Beware of giving out your personal and financial details too quickly, before verifying the lender is credible and reliable as you pursue auto financing options.

Spilled Coins from the Jar

Option 2: Finance through the Dealership

In some cases, buyers will finance a car loan directly through the dealership. This may seem like the easiest car financing option to buy a car, by choosing your vehicle and working out a financial arrangement all in one place, but it does not come without a cost.

The dealer is essentially the “middleman” between you and a lender. Even though fast loan approval feels nice, they will often give you a higher interest rate on top of what would already be attached to the loan. A lower interest rate is what you should be looking for, so pay close attention to financing terms when going through a dealership!

Option 3: Attach a Co-Signer to Option 1 or 2

Whether you finance through a bank, credit union, or auto dealer, you may be able to secure a much better interest rate if you bring on a cosigner.

This would be someone else with an established and perfect credit history (or at least, a good credit score) who would also be responsible if the debt was not repaid.

The lender would be more likely to extend the loan in this case, since someone with a positive credit rating is now invested in the ultimate repayment of the loan.

These three options may help you secure a car loan with no credit if you absolutely need to move forward with one before establishing credit. A fourth option we want to point out is that you could simply wait.

Should I Wait?

Waiting may not be the answer for everyone, but it is worth considering. If there is any way to utilize public transportation, carpools, etc. to get to your work and school, it may serve you well to try and establish credit before seeking a car loan. Here are some ideas for what you can do to be proactive during this waiting period:

Save Every Extra Penny

If you can put aside some money long enough to save up a substantial down payment, this could have a huge benefit when it comes to purchasing your car. You may be able to negotiate a much better deal overall, and you would not need to take as long to pay off your loan.

Apply for a Secured Credit Card.

You can start to build a credit history with a secured card (one that you pay a deposit to open).

Hone Your Negotiation Skills

While your limited credit history may mean you are stuck with higher interest rates on auto loans, you could at least find ways to lower the overall purchase price. Negotiating for a lower purchase price should always be a priority among new (and used) car buyers.

The Six-Month Mark and Credit Scores

Once you have opened a line of credit, such as a secured credit card, it will take approximately six months to establish a credit history. This is when you should start to check your credit score, and you should continue to monitor it as you prepare to try for an auto loan.

FICO scores are broken out into five categories, outlined below. You will not jump right to the excellent tier after six months, but over time you can get yourself into the top two tiers with on-time payments and a good mix of credit accounts.

Car Loans with No Credit History

300-579: Very Poor

Borrowers in this range have a bad credit score and are typically rejected by lenders. If they are approved, they will likely be required to pay some type of initial fee or upfront deposit to secure a loan.

580-669: Fair

Borrowers who fall into this category may also be referred to as “subprime borrowers.”

670-739: Good

In this range, borrowers are more likely to be approved for loans, but not always at the best rates.

740-799: Very Good

This category finds borrowers receiving much better interest rates on loans.

800-850: Exceptional

This is the ideal scenario for a borrower, and a lender, too, who has great assurance the money will be paid back.

Car Loans with No Credit History: Final Thoughts

It will not be easy to get a car loan with no credit history, so wait and establish a credit history first if you can.

If this is out of the question, be sure you fully understand the terms of the loan before you sign, knowing that interest rates and other penalties will be high. You must have a solid plan in place to repay that car loan so it does not damage your credit history as soon as it starts.

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DCCU Car Loan Refinance Calculator: See What You Can Save

Your car plays a huge role in your survival. It gets you to work, takes you to the doctor, and influences the quality of your daily life. Cars are expensive assets, with most private vehicles purchased with loan agreements from banks and other financial institutions. While paying off your car loan is an unavoidable part of life, interest rates, loan terms, and loan conditions can often be altered in your favor by refinancing your car loan.

If your financial situation has changed for any reason or you want to put more money in your pocket, you may wish to take out a new car loan. As one of your most persistent financial obligations, you can save lots of money by changing lenders or adjusting the details of your loan agreement. When you act smart, a car is more than a form of transportation – it is a significant and reliable asset that can be leveraged to your advantage.

There are many good reasons to refinance your car loan, with each person needing to review their own finances and lifestyle options. Perhaps your income has grown? Maybe your credit has improved over time? Perhaps the economy has shifted and you’re paying more than you need to? Regardless of the reasons, car loan refinancing is about accessing better terms and saving money for your future.

Let’s take a detailed look at auto loan refinancing so you can calculate a better deal for you and your family.

What is car loan refinancing?

Changing your car loan may seem complicated, but it’s really quite simple. When you refinance an existing car loan, you are exiting your current loan and taking on a new loan under changed conditions. The outstanding loan amount is carried over to the new loan, but the repayment terms, loan conditions, and interest rate may be entirely different.

There are two basic ways to refinance a car loan, either with your existing lender or through a new provider:

  • If you have a good repayment history, more savings, or an improved credit score, you may be able to negotiate a lower interest rate on your car loan with your existing lender.
  • If your current lender is not meeting your needs, you can research new lenders and compare your options. Perhaps you can find a better interest rate or improved loan conditions with another lender.

Why should I refinance my auto loan?

Most people who refinance a car loan do it to save money. Potential savings are not always clear cut, however, with savings always based on a specific time period. For example, you may wish to save money on your monthly repayments, which could end up costing you more in the long run. The opposite situation also exists, with shorter loan terms and reduced long-term interest often leading to more expensive monthly repayments.

While there are countless reasons to refinance a car loan, the vast majority of cases fit into one of the following two categories:

1. Your finances have improved

If your financial situation has improved, you may want to refinance your car loan. Examples include a better credit score, new employment, or more savings. In this situation, refinancing your car loan can help you to get a better interest rate, an improved loan term, or more favorable lending conditions. For example, you may be able to remove the original co-signer from your existing loan.

2. Your finances are challenging

If you’re struggling to pay your living expenses or monthly bills due to high loan repayments, it may be time to make a change. In this situation, refinancing your car loan can give you access to lower monthly repayments. While you will end up paying more over time, sometimes you need to focus on the present. In this situation, refinancing can be a good way to consolidate your debt or improve your cash flow.

The pros and cons of car loan refinancing

There are a number of potential pros and cons associated with car loan refinancing. These factors are not set in stone, however, with each person needing to analyze their own financial resources and lifestyle situation in order to make the right moves.

Let’s look at the positive reasons for car loan refinancing, along with the reasons why you should hold off and think again:

When should you refinance your car?

There are many great reasons for refinancing your car loan, but it’s important to be careful. Generally speaking, refinancing is a good move if your financial situation has improved and you’re looking for better lending conditions.

Potential pros of refinancing a car loan:

  • You may be able to negotiate a lower interest rate.
  • You may need to secure lower monthly repayments.
  • You may be able to reduce costs and fees.
  • You may want to remove a co-signer from the loan.

When should you hold off on refinancing?

While refinancing your car loan can help to lessen your financial burden, it’s not always advisable when analyzed on a long-term basis. Generally speaking, refinancing is a bad move if your financial situation is challenging and there are other options available to you.

Potential cons of refinancing a car loan:

  • You may end up paying more interest over time.
  • You may end up extending the term of your loan.
  • You may need to pay an exit fee or other costs.
  • You may get a better interest rate but less flexible conditions.

How to calculate your car loan options

Before you can calculate your savings through refinancing, it’s important to understand exactly what’s on the table. While borrowing arrangements can seem complex, all loans function in much the same way regardless of what they’re for.

The following factors are central to every lending agreement:

Interest rates

Every commercial loan has an associated interest rate. This is the cost of borrowing money, and it has a huge influence on the amount of money you end up paying for your car. Your annual percentage rate (APR) is the total cost of repaying the loan over the course of a year. Along with the interest rate amount, it’s important to have a basic understanding of interest rate structures.

There are two basic rate structures: fixed interest rates and variable interest rates. Most car loans are fixed, which means the rate amount is locked in for the term of the loan. In contrast, variable rates go up and down depending on the lender, the loan arrangement, and the wider economic conditions. This can be good or bad, but it is always inconsistent.

Loan term

In the most basic sense, the term of a loan is the agreed time period taken to repay the loan amount. For car loans, this is widely dependent on the original value of the car, the amount of the initial deposit, the interest rate, and the repayment amount. The loan term is directly related to both the interest payments and the repayment amount. The shorter the term of the loan, the less money is paid in interest.

Loan repayment periods can be broken down into an amortization schedule. Understanding this schedule is a great way to analyze your loan and work out how much interest you will end up paying. If you want to improve your cash flow by lowering your monthly repayments, you will lengthen your loan term and end up paying more in interest payments over time.

Loan fees

Car loans can differ widely when it comes to lending costs and fees. There are lots of things to look out for, including origination fees, repayment penalties, late payment penalties, application fees, and annual fees. Many car loans will also have a designated refinance fee, which is the price you pay for setting up a new lending agreement.

On the other side of the coin, some financial institutions offer a cashback scheme for people who refinance from another lender. While this can seem enticing, it should never be the only reason that you change lenders. Each of these fees will be included in your loan agreement, but sometimes they are hidden in the fine print.

Loan conditions

Along with the interest rate amount, the interest rate structure, the loan term, and the lending fees and costs, there may be other conditions associated with a car loan. These conditions can vary widely between products and lenders, so it’s important to do your homework.

One example of a potential loan condition is known as a balloon payment. This is a one-off payment that is due at the end of the loan period. Other examples include the provision of a personal guarantee and the inclusion of a co-signer. Along with saving money, removing the original co-signer is a popular reason for car loan refinancing.

How to calculate potential savings

Once you have a sound understanding of the basic factors that influence car loans, it’s fairly easy to calculate loan repayments and potential savings. While it might seem complex, all lenders use the same basic financial information to identify good opportunities. There are many car loan calculators available on the internet, all of which require the following information to estimate monthly repayments.

  • Vehicle purchase price
  • Car loan amount
  • Initial deposit or trade-in amount
  • Loan term
  • Interest rate
  • Balloon repayment
  • Repayment frequency

If you have this information at hand, it’s easy to estimate repayment amounts and compare car loans. While the value of the car, deposit amount, and intended loan term are likely to stay constant between providers, the available interest rate can vary widely.

Steps to refinance

Once you have analyzed the pros and cons and calculated your potential savings, you can move ahead with the next stage of car loan refinancing. Online calculators are useful during the research and comparison phase. However, it’s important to contact lenders directly to review potential savings and lock in favorable terms.

The following steps should be taken in the lead-up to every refinancing deal:

  1. Get current on your existing car loan.
  2. Review your outstanding debt amount.
  3. Compare potential lenders.
  4. Obtain pre-approval before car shopping.
  5. Balance short-term and long-term gains.
  6. Apply for a new car loan.

Why DCCU?

If you’re looking for an easy way to refinance your car loan, DCCU is here to help. We offer fair and competitive lending alternatives to the major banks. We are 100% committed to improving the economic and social well-being of our members, so you can rely on honest advice and transparent costs with every single loan. We are proud to help people from a range of socioeconomic backgrounds, including low and moderate-income members.

DCCU is owned by our members, with our financial cooperative dedicated to “building lifetime relationships through personalized financial service.” When you choose DCCU, you will benefit from flexible loan terms, low interest rates, and accessible financing up to 100% of the car’s value. Our values are strong, and our message is clear: We are “a local neighborhood Madison credit union that stands for you.”

Along with great deals, we believe in reliable extras and friendly customer support. We offer a number of easy add-ons for car loans, including extended warranty protection and loan pre-approval. When you’ve been approved for a specific amount, you can go car shopping with confidence knowing how much you can borrow. Pre-approval can be a great bargaining tool at the dealership, with price certainty leading to better decision-making and more competitive deals.

If you’re looking to refinance an existing loan from another provider, please give us a call to find out more. If you’ve already refinanced your vehicle somewhere else, it’s not too late to save money by switching to DCCU. We may be able to lower your monthly repayment, reduce your interest rate, or alter the length of your loan based on your personal requirements.

At DCCU, we proudly offer a range of lending services across Madison and surrounding counties. As a not-for-profit credit union owned and operated by our members, we are always willing to lend a helping hand. If you would like to refinance your car loan or learn more about our services, please contact DCCU today.

 

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Car Loans for College Students: Can You Get One?

Students Studying in Group

While college can be the best four years of your life (or five…or six…or more), it can also be a stressful time for many students as far as the financial implications go.

College students often have to take out a significant student loan to cover tuition, room, and board. And that doesn’t even include other expenses, like transportation needs.

While it is common for students to work, holding down part-time and sometimes even full-time jobs during college, it can be difficult to manage expenses on top of the stress of studying and attending classes.

If a student needs a car to get to and from work and classes, they may need a car loan to make this possible. While it may not be easy to acquire an auto loan as a student, the good news is that it is indeed possible.

Read on to learn more about how you can get approved for a car loan while in college. Continue reading Car Loans for College Students: Can You Get One?

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How to refinance your car loan and put cash back in your pocket

Financial situations change all the time, so it’s important to be flexible and ready to act. Along with sound budgeting and long-term financial management, refinancing your car loan can be a good way to put extra money in your pocket. While it pays to be careful in order to avoid future financial stress, there are many great reasons to refinance your car loan. Continue reading How to refinance your car loan and put cash back in your pocket

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What Are Fast Auto Loans and How They Work

What Are Fast Auto Loans

If you landed here in search of a loan to buy a “fast car,” we are sorry to disappoint you: that is not what a “fast auto loan” is all about.

Instead, we will instead walk you through how these quick loans can help out when you are in pinch, faced with an unexpected debt you cannot cover with savings. Continue reading What Are Fast Auto Loans and How They Work

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Answers To Your 2021 Stimulus Payment Questions

Millions of Americans will be receiving another stimulus check from the federal government as part of the 2021 American Rescue Plan to help with economic difficulties caused by the pandemic. We know there will be questions. How much will you get? When will the payment arrive? How do you get the money into your account? Continue reading Answers To Your 2021 Stimulus Payment Questions

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DCCU CEO, Shay Santos, Addresses Online Banking Disruption

Mobile phone with DCCU online banking with message from DCCU CEO Shay Santos regarding online banking disruption.

February 19, 2021

This week, Dane County Credit Union experienced an unforeseen and unfortunate situation like never before. It negatively impacted our online banking members by disrupting access to their accounts, ultimately weakening the revered trust placed in our organization. I would like to personally extend my sincere apologies to all members who were affected. We humbly request the opportunity to begin rebuilding your trust however possible. Continue reading DCCU CEO, Shay Santos, Addresses Online Banking Disruption

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