No Credit Car Loans: The Credit Score

At their essence, no credit car loans are exactly what their name implies – car loans extended to individuals with either no prior credit histories, limited credit histories, or poor credit histories.

You’ve seen the ads trumpeting “No Down Payment”, “No Credit Check”, and “Anyone Can Qualify!” But what do they mean? There has to be some sort of catch – right? After all, they can’t just be giving cars away – only Oprah does that.

The fact of the matter is they aren’t giving cars away, and they aren’t being totally selfless either. Those no credit car loans often come at a very hefty price. In a world where risk is expected to be commensurate with reward, the more risk you ask a lender to take… or said differently; the more risk a lender is willing to take, the greater they expect their reward to be.

Still, there are some benefits to buying a car this way, just as there are some problems with buying a car this way.

Any primer on buying a used or a new car typically addresses the importance of knowing your credit score – before you begin shopping for the car. Your credit score is (to quote the definition found on Wikipedia); a numerical expression based on a statistical analysis of a person’s credit files, to represent the creditworthiness of that person. A credit score is primarily based on credit report information typically sourced from credit bureaus.

In other words, whenever you buy something on credit – say with your credit card for example – a notation is made every time you make a payment, or conversely, don’t make one. In addition to the national credit cards companies like MasterCard and Visa, department store credit cards, gas station credit cards, telephone companies, utility companies, insurance companies, and the like all report your payment behavior to these credit bureaus.

The largest credit-reporting company in the U.S. is FICO (formerly known as Fair Isaac Corporation). Thus you’ll often hear the term “FICO score”. By keeping track of your payment history; including the timeliness of your payments, whether you carry a balance, pay your account off in full every month, or if in fact you pay at all, reporting agencies assign a numerical value to the level of the perceived risk you represent.

Some credit reporting companies also take into consideration your job history, income stability, and the impact of the economy on your ability to pay. By and large though, if you consistently pay everything on time and maintain credit card low balances you’re golden. You can get pretty much any loan you can demonstrate the ability to repay.

No Credit Car Loans: The Credit Score Contd.

The FICO credit scoring ranges between 300 and 850, with 300 being poor credit and 850 being payday loans Michigan perfect. So basically, the higher your score, the better your credit, and the more likely you are to qualify for a conventional loan. A score of 620 or above will usually qualify you for conventional financing; anything below 620 places you in the subprime category.

What Are No Credit Car Loans?

When shopping for a car, knowing your credit score ahead of time helps you determine how much car you can afford to buy. After all, if you’re looking at a high interest rate, you’ll be getting less car. This is because money that could have been going toward paying for the car is now being diverted into paying for the car loan.

It’s important to note the interest rate you’ll be charged for the loan is directly tied to your credit score. The higher your credit score, the less interest you’ll be asked to pay, because you are perceived as a lesser risk. The lower your credit score, the more interest you’ll be asked to pay, because the lending institution assumes it is taking on additional risk in loaning to you.