If you have no credit history or you are a first-time car buyer, it's not uncommon to have little or no knowledge of how the auto loan process works. What do you need to keep in mind when you are trying to get your first car loan?
Since you don’t have a strong credit background, a lender may require you to have a cosigner and/or a down payment. Also, your lack of a credit profile may make it difficult for a potential lender to evaluate your reliability as a borrower, which might make you a greater risk to them. This means that you might have a higher-than-average interest rate applied to your loan.
Now, what if you don't have a cosigner for your car loan? There may be a chance you can qualify for a First-Time Buyer (FTB) Program. This type of program doesn't require you to have a cosigner, but you will still need to provide a down payment, and, typically, because there is still an amount of risk involved, you may still have a higher interest rate. If you are unable to get a cosigner for your loan, this type of program will usually allow you to obtain financing for a new or used car.
Getting Your Car Loan Approved
In order to get approved for auto financing at any dealership, there are some basic things you may need to have in order to start the process, such as proof of income and residence. Below is further information on the additional requirements of a down payment and a cosigner.
- Down Payment - A down payment can be highly beneficial to you - it reduces the amount you need to borrow for the loan, and if you provide a large enough amount, you can have instant equity in your new vehicle. It also shows the lender that you are committed to the purchase (it can be as low as $500 in some cases). And, since you are borrowing less money, you will pay less in interest charges over the life of the loan.
- Cosigner - When a lender requires you to have a cosigner, they are asking for someone who will vouch for you. This person will take on the commitment of repaying the loan alongside you. They will need to have good to excellent credit, as well as meet the lender's income requirements. However, it should be noted that you should never put your cosigner in the position of having to repay the loan for you. Always remember that they are reassuring the lender that you will make good on your loan commitment and are helping you get approved for the loan.
Success Is Around the Corner
While building a strong credit history before applying for a car loan would be the best approach for you, there are times where you simply can’t wait that long. The good news is that a car loan from the right dealer can help you be successful in both the goal of building your credit and getting the transportation you need.
Canada Auto Loan connects people who are new to the car buying experience with dealerships that specialize in auto financing for those with no credit or damaged credit. Everyone has to start somewhere, and we want to get you headed in the right direction. All you need to do is complete our fast and easy online application.