When just starting out in life, it’s difficult to establish any credit. If you’re in college there are a lot of great options to help get your credit on its feet without having to finance a home or car. While car loans and home loans are the most exceptional types of credit, meaning they give your credit score the biggest boost, great interest rates aren’t easy to come by if you have no credit to begin with. Additionally, first time home or car buyers are sometimes taken advantage of when lenders charge extra fees and interest rates. It’s important to remember that car loans and home loans are long term. That means when you sign the agreement, you’ve signed up for a long term financial loan. If you signed up for either with bad, or no credit, your interest rate will reflect that, and it will be a financial hardship until you can get the loan refinanced. If it’s a car loan, refinancing isn’t a good option in the end, unlike a mortgage. Instead, other alternatives exist for first time borrowers.
1. If you’re in college or a trade school, apply for a credit card geared toward college students. These cards have low limits and high interest rates, but are a great way to build a credit score. They work just like a regular credit card and if you continue to make the interest payments on time, you’ll have a good credit basis in 12 months.
2. If you’re in the market for a car loan for people with no credit, avoid new cars. New cars cost a lot more which means your loan interest will cost you more. Stick with used cars, or better yet, don’t even get the loan until you have better credit through other means.
3. If you’re not in college or trade school, go for a secured credit card. These cards have collateral based lines of credit (you send in a deposit to the lender to hold in lieu of payment). Be sure they report to all three credit bureaus and close the card out after one year.
4. Car loans for people with no credit history can be very predatory. Lenders can sometimes prey on desperate people that need a car to get to and from work. If it all possible, try and avoid this process by building your credit through other means. If you can buy a used car with a very low cost, say $1000-$1200, you can pay it off in a year and consider that money towards buying a new credit score. The payments and loans will do a great deal to improve your credit rating. Then you can get a better deal on a new auto loan as well as using the old car for a trade in (not always possible).
An auto loan for people with no credit isn’t a good option for anyone except the lenders. If you’ve been sold on a new car, and you have no credit, it’s much better to wait and build your credit. Secured cards, college credit cards, cheap car loans or even a department store credit card are better options, if you’re willing to wait 12 months. In the end, the wait will save you thousands of dollars.