OneMain Financial: Tips for Buying a Car with Limited Credit

Buying a car can be an exciting process full of research and long-term preparation, but it can also be intimidating for those with limited credit. With fewer financing options, borrowers may worry that getting the perfect car is out of reach or requires too much money upfront.

There are still ways to get a personal loan to buy a car without an established credit history or a good credit score. This article will provide helpful tips for purchasing a vehicle with limited credit.

Improve their credit score

Most lenders use the FICO® scoring system. They calculate their scores using five primary variables. Two are payment history (35% of score) and amounts owed (30% of score). Many people find that their credit scores improve by doing the following:

• Make all debt payments on time.
• Pay off outstanding balances.
• Keep credit card spending low.
• Limit applying for new credit accounts.
• Keep old credit accounts open.

Lenders and credit card companies typically report payments to one, two, or all three of the major credit bureaus on a monthly basis. The actual day, time, and frequency will depend on the lender, so borrowers should work toward paying off their outstanding balances several months before attempting to buy a car.

Find a co-signer

Another option is to find someone with established credit to step in as a co-signer. This person will agree to take responsibility for repaying the loan if the borrower cannot make payments for any reason. Lenders are more likely to approve someone with limited credit when they have a co-signer because there is more guarantee that the loan will be paid.

Pay more upfront

Higher down payments can improve a person’s chances of getting approved for a car loan. They lower the risk to the lender and may be eligible for better loan terms depending on how much money they put down. From a personal finance perspective, a higher down payment means the borrower will have a lower balance to pay off and less total interest owed during the life of the loan.

Look for a secured loan

A secured loan is a loan that requires collateral. An example of this would be putting up the deed to a property or the title to a vehicle as security to guarantee repayment of the loan. If a person defaults on the loan, the lender will forfeit the collateral.

Take out a credit-builder loan

A credit builder loan differs from a traditional loan because the borrower does not receive the funds until the loan balance is paid off. The money is held in a savings account while the borrower makes their monthly payments. Those payments are reported to the credit bureaus to help the borrower build credit. Credit builder loan terms are typically 6 to 24 months.

The Bottom Line

Buying a car is a significant purchase; for some, this may be challenging if credit is an issue. Having limited credit doesn’t have to limit anyone’s ability to have nice things. With time and consistency, they can improve their credit score, consider a co-signer, increase their down payment, take out a secured loan, or apply for a credit builder loan. Ultimately, the best decision depends on the borrower’s finances, budget, and credit history.

Sources:

https://www.equifax.com/personal/education/life-stages/buying-car-bad-credit

https://www.creditkarma.com/auto/i/buy-car-no-credit

https://www.experian.com/blogs/ask-experian/can-you-get-car-loan-with-no-credit/

https://www.myfico.com/credit-education/whats-in-your-credit-score

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OneMain Financial is the leader in offering nonprime customers responsible access to credit and is dedicated to improving the financial well-being of hardworking Americans.

Contact Information:
Name: Sonakshi Murze
Email: [email protected]
Job Title: Manager