How Having No Credit Affects Car Loans

When you have no credit, car loans are a little bit more difficult to come by. Many young people go out into the market for the first time with no credit to their names. This is not necessarily a negative against them, however it is a representation of their lack of experience in the market. With no credit history, lenders are a little more skeptical of lending you money. They do not know how you will behave with borrowed money and they do not want to be the first lender to give it to you. However, you can still get loans under the right circumstances. Here is how your potential car loan options will be affected by having no credit.


One significant way that you could be affected by having no credit is that your application will be denied. Some lenders will not lend to those that have no credit. In most cases, they have a policy that prevents them from lending to new borrowers. Do not take this personally as they are just sticking to their guidelines. However, you should be aware that some lenders will not do business with you at all. Just do not give up after the first rejection and try another lender or car dealer.

Higher Interest

When you try and get a car loan without any type of credit, you will undoubtedly have to pay a higher interest rate than a normal borrower would. This is simply because you represent a higher level of risk for the lender. When you take on additional risk in an investment, you want to bring in additional rewards as well. While it might not seem like a very big difference in the rate, you will most likely pay a substantial difference over the life of the loan.

Higher Monthly Payment

While you should not shop for a car based on the monthly payment, it can play a role in your decision. With a higher interest rate on the loan, you will have to pay back more money each and every month. Therefore, it can affect how much car you are able to afford. If you decide to get the same car that you initially wanted, it might affect your budget and other areas of your life. Be prepared to budget for a little higher monthly payment than you initially wanted to pay.

Limited Options

Not every lender wants to work with new buyers. There are certain lenders and car dealers that are willing to work with those that do not yet have credit. However, this will limit your options to choose from. You cannot just walk into any dealership that you desire and buy the car that you want. You will have to choose a car from your available options. If you had your heart set on a particular make and model, you might have to end up compromising until you build some more credit.

blog comments powered by Disqus