No Credit Car Finance
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The term ‘no credit’ means you don’t have any credit history, which means you won’t have a credit score. Having no credit seems like an ideal scenario, it probably means you haven’t had to seek financial help from a lender because you have paid for everything with your own money.
Surely that must mean your credit report is glowing and you are an ideal lender? Unfortunately, it doesn’t work like that. Those that have never borrowed could be seen as too much of a risk for lenders, as they want to lend to someone who can repay their debts on time, without a credit score or report, they don’t know if you can or not.
If you have just left college or university, then it’s likely you will have no credit score (student loans are not included on your credit report) or, maybe you have just never sought financial aid from a lender. If you are in this position and are looking for no credit car finance, the best thing to do is to build your credit report in order to prove your affordability to lenders.
How to build your credit report if you have no credit
Get a credit card
Perhaps the most simple way to build up your credit and a good starting point if you do not want to enter into a large loan straight away. Having a credit card has unnecessary taboo surrounding it and therefore, it’s difficult to see credit cards in a positive way. However, the simple act of paying for something on a credit card and paying it back straight away can allow your credit score to increase considerably. It’s important to not get carried away and start paying for everything on a credit card when you can’t afford the repayments, otherwise, it will have the opposite effect on your credit score.
Have a presence on the electoral roll
This method of building up credit is one that confuses many people, How can registering to vote affect my credit score? Well, when you register to vote, your electoral details are included on your report and then lenders can confirm your name and address, which consequently increases your score. In addition to this, being on the electoral roll can save you a lot of time when you apply for credit. If you were applying for car finance, lenders will just check the electoral roll to confirm your details, rather than asking you to collect evidence of your identity through other means, which can delay the process considerably.
Check your credit file
A lot of people are guilty of shying away from their credit score but if you are applying for no credit car finance then you may need to check your file to see if you actually have no credit. Checking your credit score is quick and easy via dedicated websites such as Experian and despite what people think, checking your score does not damage it in any way.
You may have incorrect credit on record that is tarnishing your file, for example, a missed payment claim on something you paid on time. As long as you have the evidence to prove it, your credit file can be updated accordingly. A mistake may be the reason you are being declined car finance in the first place, which is forcing you to search for no credit car finance unnecessarily.
How does car finance work?
There are a number of different forms of car finance and each type is suited to your credit stance. If you are looking for no credit car finance, you won’t necessarily be an ideal candidate for lenders, so choosing an option that suits those with no credit is essential, as this will build your credit rating up, rather than make it worse.
Hire Purchase (HP) car finance
Hire Purchase car finance is one of the most simple and popular ways of financing a car. As is the case with most finance deals, a minimum deposit of 10% is usually required with HP, but there are some cases where no deposit is necessary. You then agree an amount with a lender, which is paid over a period of 12 to 60 months and interest payments are added on top.
No credit car finance
There are some lenders who offer no credit car finance, but there are strict criteria points that every applicant must hit:
- You must be at least 18 years of age
- You must hold a full UK driving license
- You must not be declared bankrupt
- You need to be able to prove your affordability through other means
- You need to have lived in the UK for a minimum of 3 years
Although no credit car finance would be a quick fix to getting your new car and in the long run, as long as you repay your loan in full and on time, you will improve your credit score. There a very few lenders who offer no credit car finance because it is too much of a risk. Therefore, if you are rejected by one, it’s unlikely another will accept you.
You may be better off building up your credit score and getting car finance through a more regular means, rather than risking damaging your score by applying for no credit car finance.
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