How to Qualify for First Time Buyer Car Loans
Getting approved for car financing can be a stressful experience no matter what your financial situation but first time buyer car loans may be one of the more challenging situations of all. In some instances, people with poor credit histories may find it easier to get approved so if you’re looking to finance your first car, here are a few tips that might help.
If Possible, Find a Co-Signer
If you have someone willing to help out, this option provides the best solution for first time buyers. If your co-signer has good credit, you’ll most likely qualify for a good interest rate which reduces your monthly payments and your overall finance charges.
Whether you have a co-signer or not, make sure you don’t put yourself in a situation where it will be difficult to afford your monthly payments. In other words, be realistic with what you can comfortably afford. If you don’t have a co-signer, this will be critical. The disadvantage of first time buyer car loans is the fact that lenders have no way of knowing how well you’ll repay your loan and an inexpensive car translates into less money being borrowed which could increase your chances of getting approved.
Be Prepared to Put Money Down
Typically, people with a long history of good credit qualify for zero down auto loans but even in these circumstances, most lenders like to see some “skin in the game”. For first time buyer car loans, it’s not even debatable. You will need a down payment and the bigger the better. For people with average credit, most auto finance companies require a down payment of 10% or a minimum of $1000.00 dollars. But if you’re a first time buyer with no co-signer, be prepared to put down up to 30%.
Understand How First Time Buyer Car Loans are Underwritten
The two primary factors an auto finance company evaluates when considering an auto loan are 1) a borrowers ability to repay and 2) a borrower’s willingness to repay. Since people looking for first time buyer car loans have no credit history, the ability of the lender to determine the willingness of a borrower to repay is indiscernible. In other words, there is no track history with other creditors to evaluate. This leaves the ability of a borrower to repay as the only criteria on which the lender can hang its hat.
As it relates to assessing a borrowers ability to repay a loan, lenders look at how long you’ve been at your current job (the longer the better – but at least one year), how much you earn, how you are compensated, how long you’ve been at your residence, and your debt to income ratio.
The Buy Here Pay Here Option
If you are unable to secure car financing through more traditional methods, one option to consider is the buy here pay here program. These are generally used car lots that offer in house financing on older, inexpensive vehicles. Although the type of car you get may not be the “car of your dreams”, it is a viable route to consider if you’re in need of transportation. If you go this way, make sure you do business with a reputable dealer that reports your car payment history to the credit reporting agencies. This way, you’ll build your credit history and will be able to qualify for better car loan the next time you’re ready to buy.
For more information on first time buyer car loans, visit how to get a car loan.