The purchase of the first car is always a significant achievement. However, if you have bad credit, getting approved for an auto loan on your own can sound like a real challenge. How clean does your credit have to be to buy a car with no need for a cosigner to the loan?
Which Credit Score Is Preferred by Most Lenders
The answer would depend on the particular lender and the details of the car in question. Nonetheless, it is more advisable for a borrower to have a credit score of a fair rating for an unsecured auto loan.
On the popular 300 to 850 FICO scoring range: On the popular 300 to 850 FICO scoring range:
- It is considered good to achieve a score above 670.
- The fair category is 620 to 669.
- And as a rule, anything below 620 is considered to be bad.
As it has been presented in the current lending climate, people with scores in the fair range can secure independent financing on their own but the price for this is a lower score. It is implied that a better credit score means the best auto loan options.
Thus, it is imperative to understand that minimum credit requirements do differ from one lender to the other.
While score thresholds fluctuate slightly, here is a general sampling of credit score requirements major lenders look for: While score thresholds fluctuate slightly, here is a general sampling of credit score requirements major lenders look for:
Minimum credit scores for financing from popular lenders:
- Capital One – 500
- GM Financial – 620
- Chase – 620
- Bank of America: 625
- Wells Fargo – 640
- Discover – 650
As seen, the approval figures are higher when one goes to a bank to finance as compared to financing directly from some manufacturers. Income level, outstanding loans, and down payment are also considered by the lenders before approving the loans. However, credit score does not lose its significance and remains a crucial factor.
Some of the dealerships assist in the coordination of financing through a wide range of creditors. However, they cannot change score requirements. This often translates to getting a cosigner with better credit or looking for cheaper car models as weak credit history implies.
Things That Can Assist to Compensate for Reduced Credit Rating
Thus, although the best possible credit score is desirable, it is not the only approval criterion. Some helpful counters to low scores when seeking an independent car loan: Some helpful counters to low scores when seeking an independent car loan:
- Large Down Payment – any deposit of at least 20 percent is an indication of the ability to pay and reduces the amount to be financed.
- Income that is greater than the cost – When the item is easily affordable, it is considered to be safer to purchase. Pay stubs assist in proving this.
- Specific Loan Term – Lenders like the idea of a 3-year loan repayment term as opposed to a 5- or 6-year term. The balance gets paid faster.
- Recent Good Account – Though weak now, proving account handling is building credibility. Having some credit is useful – especially if payments are being made on time.
- Co-Borrower Not Necessarily a Cosigner – Having your spouse or partner’s income and credit history on the application boosts chances of approval. Both names are present in the loan papers.
Besides the above, there is a need to consider several other factors which include the following: The need to ensure that when buying a vehicle, the price of the vehicle has to be in line with the existing budget. At times, the approval from the lenders is beneficial in determining the right level of affordability before one starts to move around the dealership lots.
Be Approved for the Purchase of a New Car When You Have a Bad Credit and No Cosigner
There is often a tendency for buyers with sub-prime credit ratings to be directed to used cars for better chances, according to the finance officers. A good number of lenders just consider new cars as too credit-risky to be offered to sub-650 credit scorers. Regrettably, getting approval for purchasing new items with a bad credit score and without a cosigner is nearly impossible.
Without enough borrower leverage, most requests come back with stipulations of Without enough borrower leverage, most requests come back with stipulations of:
- Deposits of 30 percent and above
- Maximum loan terms of 3 years
- Such high interest rates of up to 25 percent.
These high rates as soon as possible obliterate any purchase bargaining or discounts. Hence, waiting for a year or so to correct credit imperfections toward a 620 score or searching for a willing – and credible – cosigner might be the most effective strategy before visiting dealers about purchasing new. Otherwise, choosing a good used car becomes the only viable solution.
Establish credit and save up to buy solo cars later
Yes, agreeing on a cosigner now can just seem restricting or awkward. However, if seen as a stop-gap measure to create credit histories at the individual level, it is a good strategy. Suppose a cheap used car is taken with a small amount of credit.
Religiously paying those monthly installments on time improves creditworthiness within a short period to shop for a new car on one’s own. Lenders then notice that within the next couple of years, you have had positive credit activity and that you do not take borrowing commitments lightly.
Once you have a record of credit with small loans, your auto financing options are vast. Shopping solo with confidence then becomes your reality the next time bigger wheels call your name at the dealership. Be patient and disciplined when purchasing the first car without the best credit status. Marriage remains at a distance, and ahead is the chance to sign for oneself.
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