Do you need credit history to buy a car

Buying a used car can be an exciting experience. However, if you don’t have credit or have a very short credit history, you are likely having trouble becoming eligible for many car loans at dealerships near you. Sometimes, it may even feel impossible to buy a vehicle.

The good news, however, is that there is still a solution for buying a car without credit. The solution is dealerships, such as Toyota Direct’s Columbus used car dealer, that provide car loans for buyers without credit. These no credit car loans are a great route to consider when you have no credit, and you may be wondering how to best go about shopping with dealerships that provide these car loans. At Toyota Direct, we want you to be informed about these services; therefore, we have provided a list below of six pieces of information on how to best find a car without credit.

1. Know Your Credit

Although no credit dealers determine loan eligibility on factors like income, you should first understand how your credit works before taking advantage of a no credit car loan. The reason for this is that a car loan will have a positive impact on your credit score if you make payments on time. Once you’ve made a few payments, you will likely be able to watch your credit score increase with free credit report tools.

1. Make A Budget

Once you understand how your credit works, the next thing you should do is determine how much you are willing to spend on a car. To do this, you should calculate a budget based on every factor that comes with financing a used car. A budget is especially important when seeking a no credit car loan, as you don’t want to buy something you can’t afford. Below, you can see which factors are used to calculate a budget:

• Car cost
• Registration Fees
• Taxes
• Insurance
• Maintenance
• Fuel Efficiency

1. Research Dealerships And Shop Around

After making a budget, it is crucial to do some research on the different used car dealerships near you that provide no credit services. Ideally, you should find something with a diverse inventory and an easy-to-use website that allows you to browse and filter their inventory from the comfort of your home. You can also determine which dealerships are the best based on online reviews. If you visit the website of Toyota Direct’s Columbus used car dealer, you will see an excellent example of a reliable dealership’s online presence.

1. Watch For Specials And Deals

During your dealership research, something else you should watch for is seasonal and annual specials or deals. There may be several dealerships near you having sales for different reasons. If you visit Toyota Direct’s Columbus used car dealer, you will see that we always have deals on our large stock of used cars.

1. Save For A Down Payment

Suppose you’ve found the perfect dealership that offers cars that interest you. Before visiting, you should ideally save up for a down payment. Typically, a down payment should be twenty percent of a vehicle’s value, but any amount will help you to achieve lower used car loan rates. You should also note that trading in a vehicle acts similarly to a down payment, and some dealerships even have trade-in deals and incentives.

6. Consider A Co-Signer

Whether you’re getting a no credit car loan near Columbus, Ohio, or anywhere else, the final thing you should think about is whether or not you want a co-signer. A co-signer is someone who would take over a loan if you defaulted on your payments, providing an added level of financial security to the lender. This financial security will often get you lower rates on your car loan. There is a lot of responsibility behind the role of a co-signer; therefore, you should choose someone you trust to co-sign, such as a close friend or family member.

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Buying a car is a huge financial step, and knowing your credit score can help you enter the buying process on strong footing. A second quarter 2022 report released in August by credit bureau Experian shows average credit scores of people financing cars rose slightly from a year ago. The report also found:

• On average, the credit score for a used-car loan or lease was 675, according to the data, while the average score for a new-car loan or lease was 738.

• About 65% of cars financed were for borrowers with credit scores of 661 or higher, the report shows. Borrowers with scores between 501 and 600 accounted for about 14%, while less than 2% of financing went to people with scores below 500.

A lower credit score won’t keep you from securing a car loan, but it might spike your interest rate, leading to higher payments.

In general, having a larger down payment, shopping around for financing and bringing in documents showing a good payment history on other big purchases may help you offset damaged credit.

Know how your credit is scored

See your free score and the factors that influence it, plus insights into ways to keep building.

Better credit means lower costs

Interest rates differ based on your credit score, so knowing what to expect on average can help you budget for your car. A target credit score of 661 or above should get you a new-car loan with an annual percentage rate of around 4.03% or better, or a used-car loan around 5.53% or lower.

Someone with a score in the low 700s might see rates on used cars of about 5.53%, compared with 16.85% or more for a buyer scoring in the mid-500s, according to the data from Experian. Using a car loan calculator illustrates the difference that can make.

For example, on a $20,000, five-year used-car loan with no down payment, that’s a monthly payment of about $382 for the buyer with a higher credit score versus $496 for the buyer with a lower credit score. The buyer with better credit would pay about $2,921 in interest over the life of the loan, while the buyer with lesser credit would pay around $9,759. Plus, in most states, bad credit can mean higher car insurance rates, too.

The differences aren’t quite as steep for new-car loans: Borrowers with scores in the low 700s can expect an average rate of 4.03% compared with 9.75% for borrowers with credit in the mid-500s.

What is a FICO auto score?

It’s smart to have some idea what dealers will see when they check your credit profile by checking your credit score. Chances are, however, that your dealer might use a FICO automotive score instead of a traditional FICO score or VantageScore.

Your FICO auto score is a specialty score ranging from 250 to 900 that weighs past car-loan payments more heavily than the traditional FICO score does. It also gives more weight to any repossessions or auto-loan bankruptcies you might have previously filed. To check your automotive score, you can buy a full set of FICO scores at myFICO.com and then cancel the service rather than pay the fairly steep monthly fee.

Other factors beyond credit score can help you buy

If you have a credit score below 700 and are concerned about approval, prepare by focusing on the positives in your financial life. Remember, people with major blemishes on their credit are routinely approved for car loans. If you have poor credit, here are some positive financial behaviors to highlight in the finance office.

Bring a bigger down payment to the table

A big down payment can help offset a bad credit score by lowering your monthly payments. It might even help you get a lower interest rate. For some lenders, a big down payment might make you appear less risky, despite a lower credit score.

Bring documents showing financial stability

If your credit score is low, potential lenders are less likely to see you as a risk if they can see you have stability in other areas of your financial life. Bringing documentation like your most recent pay stubs and proof of address to show lenders how long you have lived at your current address and worked at your employer could help you seem more reliable.

Consider bringing your own financing

While dealerships do provide financing, checking with your local bank or credit union is a good idea, too. You can even compare car loan rates online. Compare quotes from the top potential lenders and, once you’ve settled on your top choice, you can get preapproved to make the process run smoothly.

Keep in mind that getting financing results in a “hard pull” on your credit. It helps to cluster applications closely together when rate-shopping for a loan.

If you end up with a loan with a higher rate than you wanted, keep an eye on your scores. You may be able to refinance your auto loan at a lower rate after you’ve made on-time payments for six to 12 months.

Build your credit before car shopping

If you still aren’t getting car loan rates that work for you, it might be time to delay your car purchase and work on building your credit. That means:

• Paying bills on time. A payment that goes 30 days past due can devastate your score, so pay at least the minimum on time.

• Keeping credit card balances low compared to your credit limits. How much of your limits you're using is called your credit utilization, and it has a big effect on your score. You can try a number of tactics to lower your credit utilization in order to bump up your score.

• Avoiding applications for other credit within six months of applying for a car loan.

• Keeping credit card accounts open unless there's a compelling reason to close them. Closing cards reduces your overall credit limit, which can hurt your credit utilization.

Your car loan can help you build better credit

Once you've secured your car loan, it will help you build credit in two important ways: payment history and credit mix.

Payment history is your track record of paying bills on time. It accounts for more of your credit score than any other single factor. Traditional lenders report your payments to the three major credit bureaus, which provide the data to calculate your credit scores. (Note: Buy-here, pay-here lenders often do not report payments to credit bureaus. These loans not only tend to have high interest rates, they also won't help you build credit if payments aren't reported.)

Credit mix means whether you have both installment loans (with equal payments over a set period) and revolving credit (variable payments and no set end date, as with credit cards). If you have mostly — or only — credit cards, adding a car loan may help your score a bit.

What's next?

• Sign up to get your free credit score and report from NerdWallet. Information is updated weekly, and the factors affecting your score are broken out to make them easier to understand.