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How to apply for credit with no credit

How to apply for a car loan
How to apply for a car loan © Brocreative/Shutterstock.com

Auto lenders typically require the four C's to give out a loan: credit, capacity, collateral and character, says George Hrisoulis, vice president of operations at Auto Credit Express. But if no credit exists, a lender may still OK a car loan if the other C's are above average.

For example, have you been at your job for at least a year? Is it a full-time, permanent job with steady pay? Is the car payment less than 20 percent of your gross income? These factors, along with the length of time at your current residence and education, are other key measures auto lenders look at.

The lender also may require a larger down payment than the typical 10 percent or want the sales price to be close to the book value of the car.

"The lender wants to feel comfortable that there's equity in the deal and that it is collectible should the borrower default," says Hrisoulis.

Once again, another option is to get a co-signer, says Phil Reed, senior consumer advice editor at Edmunds.com.

The remaining alternatives are often costly, says Reed. Car title loans come with high interest rates, and buy-here-pay-here car lots often place GPS systems in cars for easier repossession.

"This is not what we recommend," Reed says.

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