For many, getting a car loan is no simple task. Auto financing became a lot harder and tougher after 2008 due to the global economy down-spiral, especially to individuals that have no viable credit history under their belt. A great number of people chose to hold on with their current situation of either having no vehicle of their own or owning an ailing and beat-up jalopy rather than seeking a financial institution willing to finance their car purchase due to difficulty of finding one, and if they do find a willing lender, the uncertainty of being able to pay the loan off loomed due to the many layoffs, hiring freeze, and company closures that are happening all around. rnThe good news is that as the status of economy steadily improves in many parts of the world, and most parts of the country, financial institutions have begun to gain back confidence and decided to loosen the previously tight reins, allowing expanded access to everyone to financing of any kind.rnThe no-so-good news, however, is if an individual has credit issues, a premium fee needs to be paid before the financing process is initiated to cover the financial institution’s potentially high risk. Basically, the same process followed when applying for a mortgage or any other loan. The guarantees and provisions varies from lender to lender, but the general rule – an applicant for a car loan is considered a subprime borrower if the applicant’s FICO score is less than or equal to 660, their debt-to-income ratio is more than or equal to 50%, and has filed of bankruptcy within the last 5 years.rnErrors reflecting on a person’s credit report can lead to a higher interest rates or having their application for a car loan being denied, so always review and analyze credit reports and dispute and mistakes found immediately. A study conducted by the Federal Trade Commission showed that 5% of the total American consumers had errors reflecting on their credit reports that can potentially lead to higher premiums for auto loans and/or insurance or even denial of their applications altogetherrnHere are some helpful tips and options for people with no credit historyrnï¶ Pay cash. Save enough money to pay for the vehicle full in cash. By doing this one can avoid potential cash flow concerns that can result to the repossession of the vehicle and further damaging your credit history. It is not an option that is applicable for everyone, but it is the option that provides a way to avoid high-interest rates that one often encounters due to credit concerns.
ï¶ Consider the duration and length of the loan. Set a monthly payment that will not stretch one’s budget too much and balance it with the duration of the loan. Car loans with longer durations – some financial institutions approves car loans with a duration of 6 years or longer, for instance – usually leads to more expensive payments than the actual vehicle’s price, due to depreciation.
ï¶ Obtain a cosigner. To help boost the confidence of the financial lender in one’s ability to pay off any loan, having another individual like a parent, guardian, or spouse willing to cosign one’s car loan is best way to do it. It gives the financial institution a sense of security in an event that there will be another option in terms of recovery beyond the applicant.