First Car Guide for First Time Car Buyers

What if I have no credit to buy my first car?

Is it possible to buy a car with no credit? Can I buy a first car if I don't have any credit?

When you take out a loan, mortgage, or credit card, it is reported to one or more of the credit agencies. Your balances and payment histories are also recorded there. Loan defaults, foreclosures, and bankruptcies are there as well. That way, if you attempt to take out a new loan or apply for a new credit card, the company can check on your past history to determine the risk of doing business with you.

Having no credit history is almost as bad as having a flawed history, from a lender's perspective. Since you don't have a history, he is safer in assuming that you represent a high risk until you prove otherwise.

Auto loan sources such as banks, credit unions, and loan companies must take precautions when lending money to people who have no established credit history. Some are more willing than others to help first time applicants.

Major car financing companies such as GMAC, Ford Motor Credit, and American Honda Credit often have programs designed to make it easier for first-time new-car buyers to get loans.

What's the answer?
For most people with no credit who want a loan, getting a co-signer is the best solution. If the co-signer has an established history of good credit, you can get a loan based on their credentials. It's still your loan but you get the benefit of your co-signer's good credit.

If you make all your payments on time and don't miss payments, this is a great way to not only get your loan at good terms, but to begin building your own good credit history so that you won't need a co-signer for your next loan.

If you can't get a co-signer for your new car loan, your options are limited. Try borrowing from a good friend or family member.

If you have an account with a local bank, try them. You might be able to find a loan company who is willing to lend to you but you may have to accept high interest rates and down payment requirements. If you have to accept a high interest rate, you may be able to refinance later when you have a better credit history.

If buying a used car, avoid "by-here-pay-here" lots who offer their own high-cost financing. These companies make their money by charging high rates, not allowing late payments, and repossessing customer's vehicles to put back on the sale lot.

Having no credit when buying a first car limits your options. Generally, getting a loan co-signer is the right answer.

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