Oct 23, 2024
It can be frustrating to be in a great financial position and still struggle to get approved for a car loan. Unfortunately, that's a scenario that can play out even if you're debt-free.
The reality is you typically need to use credit to show you're responsible with it in order to earn a good credit score — which is one of the key factors lenders look at when deciding whether to offer you a loan. Unfair as it may be, if you have no record of making payments, lenders may be less inclined to trust that you'll be responsible if they give you money.
Advertisement
But this doesn't mean you're out of options when it comes to getting a car loan. The solutions available to you are going to depend on your timeline as well as what financial actions you're willing to take to get approved to borrow. Here's what you need to know.
Find out why you're being turned down
If you're struggling to get a car loan, it helps to find out why. After all, there's a big difference between not being able to get a loan because you have no credit history versus being unable to borrow because you have a record of making poor financial choices.
If you're denied a loan because of something on your credit record, you're entitled to an adverse action notice to see details. It's a good idea to read through it in case something may be wrong, such as incorrect information being listed or perhaps an unknown account was opened and left unpaid.
If nothing obvious jumps out, you can ask the lender about the issue. If they tell you it's because you have no credit, you'll have a different problem to solve than if they say it's because you have too little income or assets.
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Robert Kiyosaki begs investors not to miss this ‘explosion’ — says this 1 asset will surge 400% in a year
- Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
Explore options for getting a loan
Once you've identified the issue, it's time to look into options available to borrow for your vehicle.
If it's just your credit that's the problem, there are plenty of dealers out there advertising bad credit or no credit loans, but you'll likely want to steer clear of them. The terms of the transaction are usually quite unfavorable and you risk getting an expensive loan that damages your finances.
A better solution may be to ask your parents to cosign for an auto loan if they have good credit. Cosigning can be a precarious prospect for borrowers, but if both parties trust one another and payments are made on time, it can be mutually beneficial.
Another alternative could be to approach your bank or credit union to see if they might be able to give you a loan with traditional underwriting involving a full review of your finances rather than just a credit check.
Advertisement
These options can help you borrow at a more affordable rate so you can get into your vehicle sooner. Making a large down payment for the car and limiting how much you borrow can also help.
Consider improving your credit — or paying cash
If you're unable to get an affordable loan right now, you might have a few other options if you have a little time to wait.
One of the best solutions may be to save up and buy a car in cash. You don't need an auto loan to own a vehicle, even though most people get one, and you may have more negotiating leverage if you do an all-cash deal. You'll also save on interest and avoid committing to a monthly payment.
Alternatively, you can work on building credit by applying for a secured credit card, charging a small amount on it each month and paying your bill on time. These low-limit cards, which require a deposit, allow you to establish a borrowing history and build up your credit score.
If you can move forward with a cosigned car loan or one you get from your bank or credit union, that can also help with your credit-building efforts, which could improve your overall financial situation in the long haul, if you keep up with payments.
Those who borrow can have an easier time with important purchases such as a home or car, but if you don't have a credit history it's worth solving this problem now before it becomes a repeated issue in the future.
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- This 20-year-old lotto winner refused $1M in cash and chose $1,000/week for life. Now she’s getting slammed for it. Which option would you pick?
- Warren Buffett used these 8 repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
