Obtaining credit as a first-time car buyer can be challenging as well as nerve-racking. In fact, some loan industry experts feel that standards are stricter for a first time car purchase than for a first time home purchase. However, credit union members are fortunate since credit unions tend to look more favorably upon first-time auto buyers.
Here are some key strategies for prospective first-time car buyers:
Strengthen personal credit ratings before applying for a first-time car loan. If some credit history has been established, make sure payments are made on time and pay off any balances that have gone to collection. If there is no credit history, consider applying for a small balance credit card to establish a payment history.
Reduce overall debt-to-income ratio. In other words, look at both monthly income and monthly expenses. The ratio between the two needs to be such that the credit union feels confident that the applicant has enough disposable income to make monthly payments.
Maintain steady employment for as long as possible. Creditors want to see that the credit applicant, at the bare minimum, has held the current job for 12 months, though 18 months is preferred. Steady employment demonstrates to the creditor that the person is responsible and able to maintain a certain level of income.
Save as much money towards a down payment as possible. Though it is possible to obtain a first credit union auto loan without a substantial down payment, it's wise to have one. First, loan applicants who are able to provide 20% of the purchase price as a down payment often receive money saving lower interest rates. Second, a larger down payment prevents a first-time auto buyer from owing more than the car is worth.
Keep in mind that creditors will also look at the type of car you want to purchase. Though credit unions will definitely extend loans for used cars, most will not loan money for a car with 100,000+ miles on it. The year of the car is also a factor.
If all else fails, consider a co-signer. Since weak credit or lack of credit history often apply to first-time car buyers, finding someone who will co-sign may clinch the deal. Sometimes it results in lower interest rates and shorter pay-back time periods.
Knowing some key strategies to getting first-time buyer approval can make for a smoother process and get you the car you need so badly.
Note: Generally, direct auto loan lenders offer the lowest auto loan rates. They are the way to go to save money in your next car loan application.
Hector Milla runs the Direct Auto Loan Lenders website, where you can get an instant approval auto loan regardless of your credit.
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