Help for new borrowers: getting a car loan


Taking out a car loan for the first time can be stressful. Without any experience in the car buying process, you might not even know where to start! We have a few tips and tricks before you visit a dealership or auto lender.

Understanding Auto Loans

If you don’t get a car gift or pay cash, financing is probably the way you should get a vehicle. It means finding a lender who can approve you for a loan, so the lender can pay the seller / dealership for the car, and then you make payments to the lender until you have paid everything you owe.

More auto loans use a simple interest formula, which means that your loan balance and the interest rate determine the cost of financing the vehicle. The better your credit rating, the lower the interest rate you are likely to be entitled to. If you have poor credit, you will likely pay more in interest costs and, therefore, in the car.

As a first-time borrower, your credit score may not be the highest due to a lack of credit history, but there are still several loan options you can check out.

Different auto lenders

If you are unsure of where to begin to apply for a car loan, know that there are different types of lenders, and some of them specialize in helping consumers with credit problems. While not all lenders can work with all borrowers, there are usually three types of lenders to choose from:

  • Direct lenders – Includes banks, credit unions and online lenders. You meet and / or speak directly with the lender, and they can usually give you a check to pay the dealership or seller for a vehicle if you qualify.
  • Indirect lenders – Third party lenders who are registered with franchised or independent dealers. You don’t speak directly with these lenders and instead work with the dealership’s CFO. These lenders can include subprime lenders, as well as captive auto lenders.
  • Internal funding – In this case, the dealership is also the lender, so all car purchases and financing are done internally at the dealership.

If you have good credit, you usually have a decent chance with any of the above lender options. Direct lenders from banks and credit unions tend to offer more competitive rates, and captive auto lenders (like Ford Motor Credit) often offer savings to borrowers with excellent credit scores. sometimes offering 0% financing on new vehicles to eligible borrowers.

If your credit is poor, you may need to seek out a credit union, subprime lender, or inside financing. These lenders tend to be more forgiving when it comes to credit score requirements, and internal financers may even skip credit checks altogether.

As a first-time borrower, a credit union can be a good place to apply for first-time vehicle financing. You might have a higher chance of approval if you’re a long-time member with a good history, and credit unions are notorious for passing savings on to their customers.

If a credit union can’t help, then a subprime lender has signed up with a special finance dealer may be a good next choice. Many subprime lenders have first-time car buying programs, and they know your credit score is only one piece of the puzzle. For subprime lenders, your ability, stability, and willingness to pay are the most essential elements in being eligible for a car loan.

What do i need to apply for a car loan?

You will likely need a lot of documents when you apply for your first car loan, regardless of which car lender you choose to apply to. Expect to need these basics:

  • Computer generated pay stubs with cumulative income
  • Valid driver’s license
  • Proof of residency, usually proven with a recent utility bill in your name

As a first borrower with poor credit, you also need these additional things:

  • A list of five to eight personal references with full contact details
  • Proof of a working phone (prepaid cell phones are generally not accepted)
  • A deposit of at least $ 1,000 or 10% of the vehicle’s selling price

Buy a car for an affordable price

As a first-time borrower, you might not qualify for the highest interest rates available, due to a lack of credit history. You may also find it difficult to qualify for large loans, even if you have a great income and work history. This is because your credit score is what auto lenders use to determine your creditworthiness – your ability to repay borrowed money on time.

It’s important to choose a car loan that you can comfortably afford so that you can start your credit history on the right foot. Choosing an auto loan with car payments that don’t stretch your budget means a greater chance of successfully completing the loan and stepping away from the auto loan with a better credit score. Once you’ve seen an improvement in your credit score and proven your ability to pay off your credit on time, it might be better to pursue something more expensive.

Since you may not qualify for the lowest interest rates available or a very large loan amount for your first car loan, you may need to aim for an affordable used loan. Bad credit and no credit borrowers are often advised to buy used cars because they almost always have lower sticker prices – and a lower loan balance usually means a higher chance of approval. Lower sticker price also means save money on interest charges.

Loan, loan, auto loan!

AT Auto Express Credit, we aim to help bad credit and no credit borrowers on their car buying journey. We’ve created a nationwide network of Specialized Finance dealers who know how to help you with credit issues, so let us do the work of finding a dealer in your area.

Complete our quick auto loan application form and we’ll find a special finance dealership near you – no cost, no obligation.


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