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First-time car buyer programs are offered by some lenders to help people with little or no credit history buy their first vehicle.
Lenders typically consider your credit history and ability to repay when deciding whether to approve a loan. They rely on your record of successfully repaying previous loans or credit cards. As a first-time car buyer, you may have a credit score — even a good one — but a short credit history with no prior auto loan, and limited time working, will prevent many lenders from approving a loan for your first car.
Through a first-time car buyer program, you may be able to get auto loan approval, even if you don’t meet a lender’s typical borrower requirements. While these programs can be more flexible on credit requirements, they can also be more restrictive in other ways. For example, to be eligible, you may need to be a recent college graduate or buy a certain vehicle make.
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Where to find a first-time car buyer program
Not all lenders offer first-time car buyer programs, so you might need to research online or ask around to find one.
From a lender. Credit unions often have special programs to help first-time car buyers finance a vehicle and begin establishing credit. An online search can help you find one, but not all advertise their first-time car buyer programs, so you might have to call around to ask. A credit union where you already have accounts in good standing is a place to start.
From an automaker. Some auto manufacturers also have first-time car buyer programs or special financing for anyone with a limited credit history. These programs are available when you buy at a dealership and vary in what they offer — from more flexible loan approval requirements to rebates on a car’s purchase price.
You can find information about the availability of first-time car buyer programs on the websites of car manufacturers and dealerships. However, some car makers have temporarily suspended such programs due to the turbulent car market and shortage of vehicles.
How can a first-time car buyer program help you finance a car?
As a first-time buyer with little or no credit history, your loan application may be declined by many lenders. But first-time car buyer programs are designed with less stringent requirements to improve your chances of approval.
Here are the differences and requirements you may find with a first-time car buyer program.
Credit score. First-time car buyer programs may approve applicants with a low or even no credit score. But if your credit score is in the fair range or lower (FICO score of 669 or less), that means you can expect a higher interest rate than someone with good credit. And having no credit score at all isn’t a free pass, since lenders are likely to base your rate on the rates for borrowers with fair or bad credit.
A perk of some first-time car buyer programs is the availability of a rate adjustment after you’ve made on-time payments for a set period of time. For example, you could get a 1% drop in interest if you pay your first 12 payments on time.
Credit history. First-time car buyer programs not only accept a lack of credit history, but they may also require it. For example, to qualify as a first-time car buyer, you may be limited to a credit history of 12 months or less.
Down payment. First-time car buyer programs may require you to make a certain percentage of a down payment on your car. Even if it isn’t required, NerdWallet recommends making a down payment of at least 20% of a new car's purchase price and 10% for a used car. The less you have to finance, the lower your monthly payment and interest rate will be.
Amount financed. Often first-time car buyer programs limit the amount you can finance on the purchase of your vehicle. That’s to help prevent you from overspending and getting upside down on your car loan — or owing more than your car is worth. It also protects the lender from a larger loss if you default on the loan.
Loan term. Some lenders typically offer auto loan terms — the amount of time you have to pay off a loan — of up to 84 months. But first-time car buyer programs may restrict the loan to a shorter term.
Employment. You will definitely have to show proof of employment and your ability to repay a loan, but first-time car buyer programs often don’t require a long employment history. They may consider loan applicants with an employment history as short as three months. Some will consider part-time positions.
You will be required to provide proof that your employment is consistent, and that you have enough income to cover your car payment along with other living expenses.
Co-signers. Not all lenders allow auto loan co-signers, but first-time car buyer programs typically do. A co-signer is someone with good credit who agrees to make payments if you default on your loan. Having a co-signer may not be a requirement, but it can help you qualify for a loan with a lower rate.
Other requirements can include the need to provide personal references or proof of your recent or upcoming college graduation if the first-time car buyer program is specifically for college graduates. You must also be at least 18 years old to get a loan.
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If you can’t find a first-time car buyer program
If you’ve looked and can’t find a first-time car buyer program, don’t despair. Some lenders are still willing to make auto loans to car buyers with little or no credit history — just not as part of a first-time car buyer program. For example, online retailer CarMax says it finances many first-time car buyers through its network of lenders.
Just keep in mind that whether you get an auto loan through a first-time car buyer program or another program, your lack of credit history will most likely result in a higher interest rate to start. The good news is that you can still get a loan for the car you need; and after six to 12 months of on-time payments, you can look into refinancing your car loan at a lower rate.