Auto Financing with Limited Credit
Most car purchases on credit are based on prior credit history. This is the dilemma for most 1st time buyers. There is several ways to overcome the plight of the 1st time buyer.
Co-signers. It is no secret that many of us used a relative to help us with our first purchase. Banks usually prefer this to be an immediate family member and hopefully someone with fairly good credit themselves. If the co-signer is not showing a responsible credit history presently, the bank is not going to approve your loan with their help. Usually after one car loan paid “as agreed” a co-signer will never again be necessary unless you credit history takes a change for the worse. It should be noted that the loan amount counts on the credit availability of the person helping you. So make sure if that person is going to help you is aware of this fact.
Substantial down payment. Banks are not hard to figure out. Put them in a position where they have little risk and they will probably approve the loan. Typically, 30 to 40% of the purchase price used as a down payment usually gets the banks attention. This puts them in a profitable situation even if the loan goes into default. Remember, as difficult as it seems to obtain a loan as a 1st time buyer, it is important you keep the loan in good standing or your next car loan could be sub prime. This is typically a loan with a higher rate of interest so you don’t want to get in this position if at all possible.
Keep your purchase realistic. Like the sub prime borrower, it’s important that you keep in mind that you are in the process of showing the credit world you are a responsible member. Purchasing a vehicle that will put your credit in a vulnerable position is not the way to get started. Look at cars that will provide you with good value and lower cost of maintenance as a way to ensure your good credit now and down the road. |
