Auto Loan Terms to Expect with No Credit

• Posted on Autos.com Editor
• in Auto Loans
• on October 7, 2013

For some potential car buyers without a solid track record of paying off credit, lenders may stick to tougher auto loan terms for investing in a debt such as an auto loan. To some, it may seem counter-intuitive. After all, a lack of credit can simply mean that an individual has never had to borrow money. But lenders generally don’t see it that way. A lender offering car loan rates wants to see a history of borrowing, because statistically, this demonstrates a better chance of a return on the loan. Without a credit history, lenders may require some additional safeguards for their side of a car loan agreement.

Income Standards

Without seeing a credit history for a borrower, a lender might be much more strict about requiring the borrower to have a high income. A higher income is another statistical advantage, where a borrower who makes a lot of money is more likely to be able to repay the loan without any trouble.

Higher Interest Rates

Another very common feature of a no credit car loan is a loan agreement that includes much higher interest rates than one for a standard credit-carrying customer. Customers with credit scores above 680 generally get competitive car loan interest rates. Customers without credit history shouldn’t expect this to be the case. However, by shopping around, you may be able to find no credit car loans that offer decent rates, not astronomical ones. Be sure to look into a variety of no credit car loan agreements so you’re not getting taken advantage of by a lender who wants to pad their pockets by offering sky-high interest rates to high risk borrowers.

Repossession Hardware

Another thing that lenders might do for no credit car loan borrowers is to offer a loan agreement that makes repossession easier in the case of default and nonpayment. New technology provides some options making it easier for a dealer to take back a vehicle when the payments are not coming in. In the old days, a human repossession team went to an address to collect a vehicle whose owner was late on payments. Today, a dealer or other lender can install an engine immobilizer device, and switch off the vehicle’s engine remotely if payments are not being made. This cuts down on the costs for multiple loans in default, and allows the lender to offer some better terms to higher risk borrowers.

Credit Building Requirements

For someone with no credit history, building a basic credit history is often as easy as taking out a credit card and paying it off for several consecutive months. In a potential auto loan deal, a lender might suggest that a borrower follow this strategy, to make their no credit situation into a decent credit rating that offers a low risk assessment. This is critical for a lender who has to “go by the books” and only offers decent car loan arrangements to customers who present a good low risk rating.

All of the above are things that you can expect from different lenders who are dealing with their risks of offering car loans to customers without a solid credit history.