An auto loan is a personal loan that requires no additional collateral. The car you are buying will itself serve the purpose of collateral, which means you will not have the title of the car unless you discharge the whole of the debt, though you are completely free to use your car the same way you want. Whether or not you are a first-time car buyer, you would not be able to apply for them without a credit check.
As a matter of fact, car loans involve hard checks. No lender can make a decision without running hard inquiries. They will show up on your credit report for two years. Hard inquiries pull your credit points, but the damaging impact is not long-lasting. As soon as you start making payments on time, your credit score bounces back.
Getting a car loan with no credit checks is not possible because they are not as small as emergency loans that are required to be settled in one fell swoop. Car loans are paid down over an extended period of time. No lender would take on the risk by approving a car loan without perusal of your credit history. What if your past payment behaviour is terrible?
But there are some lenders who could be willing to approve a car loan with no credit checks. This blog discusses some ways you can get it without having your credit report gone through.
1. Get a co-applicant
A co-applicant and guarantor are both different, and they both have different roles. A co-applicant is a co-buyer. It means you and your co-applicant will be joint owners of the car you want to purchase. A joint owner could be your significant other or a parent.
When a joint car loan is taken out, your lender will peruse the credit reports of both of you. Because your credit rating is not so stellar, your spouse should have a good credit rating. This will reduce the risk on the part of the lender. They would most likely be able to approve your application at affordable interest rates.
Taking out a joint car loan means you both are responsible for paying off the debt partly or completely. Your lender will evaluate your repayment capacity, both you and your co-signer. If you prove that you can repay the whole of the debt, your loan will be approved. Both of you are accountable to clear your debt, but if one of you fails to repay the debt, the other applicant will be responsible for discharging the whole of the debt.
2. Arrange a guarantor
If you are looking to take out a car loan with no credit checks, you should arrange a guarantor. A guarantor is a third party who enters into a contract with you and promises to he would repay the debt if you fail to discharge your obligation.
Bear in mind that there is a difference between a guarantor and a co-applicant. A guarantor is not supposed to borrow money and use it for any purpose, while a co-applicant gets their name on the application as a borrower. The guarantor is not responsible for discharging the debt as long as you are paying your dues on time.
A lender does not contact a guarantor unless all means of recovering money from you are exhausted. You should arrange a guarantor only when you are completely certain about your repayment capacity. If you fail to settle your dues, you will end up ruining your relationship with your guarantor.
It is worth noting that upon your payment failure, your guarantor will also lose their credit points. It will make it challenging to qualify for a loan at a low interest rate.
3. Make a larger down payment
No doubt you are supposed to make a down payment when taking out a car loan. A golden rule of thumb says that you should have at least 10% of your car’s value as a down payment. In case your credit score is bad, the down payment will be double. However, despite that, your lender will run a credit check.
If you are looking to take out unsecured loans for bad credit from direct lenders only in the UKto purchase your car without any credit checks, you are supposed to arrange a larger deposit. The bigger the down payment, the smaller the loan size will be. This will reduce the risk on the part of a lender.
However, do not assume that you can qualify for lower interest rates just because you are putting down a larger deposit. Interest rates will still be higher because the risk of default is high. A lender has no idea about your repayment habits in the past, even if they run soft credit checks. They make the decision only based on your income.
Credit score improvement is still recommended
Although there are some lenders who would be willing to approve your car loan without any credit checks, it is still advisable that you do up your credit score. A car loan without any credit checks will cost you a lot of money, despite a larger down payment. You should try to focus on improving your credit score. The following are some vital steps to help you ameliorate your credit rating:
a) You should use Experian Boost. This will help you build your credit rating by using payments of bills that are never considered by credit reference agencies, such as your electricity bills, mobile bills, etc.
b) You can also apply for a credit builder loan. These loans are available from direct lenders and are required to be paid back in six months. Interest rates will certainly be high, but if you manage to make payments on time, you will certainly be able to improve your credit score. In fact, these loans can also help build your credit rating.
c) Keep your credit card balance. A recommended credit utilisation ratio is up to 30%. The lower the better. When you do not have too much debt against your income, your chances of getting qualified are quite high.
The bottom line
There is no doubt that a few lenders might be willing to approve your car loan without any credit checks, but interest rates will be quite high. The loan amount will also be small, and you will be expected to put down a larger down payment.
It is enjoined that you should make an effort to improve your credit history. At the time of taking out a car loan, you should not owe any other debt. A lower debt-to-income ratio also improves your chances of qualifying for a loan.
