Have you ever been in a financial hard spot and taken a close look at your expenses to see what you could cut out? For short periods of time at least, we can live without many of the items we spend money on regularly.
In many parts of the country, though, a vehicle isn’t on that list. You need a car to get to work so it’s more of a forced investment than an expense.
If you have bad credit or no credit, it can feel difficult or impossible to get the vehicle you need, but there is hope. Try these tips on how to buy a car without credit.
1. Apply for a Loan for Bad Credit
If you’re getting turned down by traditional auto lenders, you may be looking in the wrong places. There are lenders and loan products that are specifically meant for people with bad credit.
The trick is to make sure you take a careful look at these loans for bad credit. The lender is taking a risk so you can expect that they want to counteract that risk somehow. Usually, that means higher interest rates or very strict payment terms.
2. Shop Around
You can’t know what’s available if you don’t look. In truth, this tip applies to anyone who’s looking for a car loan no matter what your credit is.
First, learn the basics. Find out the current average auto loan interest rate for your credit score range.
Second, look for lenders and start applying. If you apply for loans from several lenders within a two-week period, it will only show as one hard inquiry on your credit report. In other words, shopping around won’t hurt your credit if you do it all within a short period of time.
When you’ve done this, compare the details of each lender that approves you. Check the loan amount they’re offering, the interest rate, and the terms.
3. Check for Local Non-Profits
As it turns out, you may be able to skip all the stress of car loan shopping.
Find out about the non-profit organizations in your area that help locals. Some will give vehicles to low-income people or sell them to you at a low cost. Others will provide low-interest auto loans to low-income people.
In these situations, the key factor is your level of need. Charities typically have income limits or other requirements you need to meet to qualify for help.
4. Find a Way to Raise Your Credit Quickly
One way to deal with car shopping with bad credit is to fix your credit problem. Depending on your situation, there are some actions you can take to improve your credit within days.
One option is to pay off a large amount of your credit card balance. The higher your credit card balances are, the more it hurts your credit. Keep in mind that you won’t get the same effect by paying off student loans, personal loans, or similar accounts.
Another fast way to improve your credit is called piggybacking.
Someone who has a credit card with a low balance and a long history of steady payments can add you to their card. When you become an authorized user on that card, all the card’s positive history goes onto your credit report and boosts your score.
The challenge is finding someone who will do this favor for you.
5. Beef Up Your Savings
If you need a car but your credit is low, one problem you could face is that lenders will only approve you for smaller loan amounts. If you can’t find a reasonable rate for the loan amount you need, your only option could be to save up a higher down payment.
This could mean you need to wait a few more months. It could mean you need to pick up extra work at a side gig or sell some items you don’t need.
You could also go further in this direction and save up enough money to buy a car with cash. Keep in mind, however, that this won’t help you build credit in the future. You’ll have the same problem with a lack of credit the next time you need a loan.
6. Seek Pre-Approval
Most people know they can get pre-approved for a home loan, but did you know pre-approval exists for auto loans too?
When you apply for pre-approval, a lender looks at your financial information and decides whether they would lend to you and how much they’re willing to lend. Having this in hand makes your car-buying process far smoother.
If you find a vehicle at a dealership that offers financing, that pre-approval is also a bargaining chip. You know you have an option, and the dealership may be willing to beat the other lender’s offer so you get a better deal.
7. Be Wary of “No Credit Check” Offers
You’ve probably seen dealerships that advertise financing with no credit checks. On the surface, that seems great because it saves you stress and hassle.
That deal isn’t as peachy as it sounds. A company is taking a big risk by lending money to someone without a credit check. You can bet that they’ll offset that risk by getting more money from you.
This could come in the form of a high-interest rate or a higher price than a car is worth. Some dealerships even sell deceptively low-quality vehicles to squeeze more money out of customers.
Learning How to Buy a Car Without Credit
Having little or no credit isn’t something to be ashamed of. Even people with 800+ credit scores had to start somewhere.
It does, however, mean that you need to take certain precautions and watch your step. The tips above on how to buy a car without credit can help.
Want more tips on leading a healthier financial life? Check out other articles on our budget-friendly site.