The difficulties associated with getting a car loan when you have bad credit are well known and fully explained in many articles. However, there is not much written about the problems that people with no credit history have to go through in order to obtain finance to buy a car.

Why having no credit history is a drawback?

The problem with having no credit history is that the lender has no means to measure the risk involved in lending to someone with no credit history. Unless you can provide some other asset as collateral besides the car, the lender is incapable of establishing the loan amount he can grant, the interest rate he will charge and the number of installments or loan length.

What the lender wonders is why someone with no credit history never requested a loan. Was it that he never needed one before? Or was it that he already knew he wouldn’t get approved?

What can be done to solve the no credit issue?

There are many measures you can take in order to work out this problem. What you need to do is to start building yourself a healthy credit history. There are many financial products you can acquire in order to get the financial institutions start reporting to the credit agencies and thus start building a credit history.

Payday loans do not require credit checks, so you’ll be able to apply for a payday loan without worrying about not having a credit history. The problem with payday loans is that the interest rate charged for this kind of products is very high and you may not need the money, so it makes no sense to request an expensive loan just to get your payment recorded into your credit report. Besides, you’ll need a savings account and a steady income which leads us to the really first step:

If you don’t have one already, open a savings account with a bank and if possible a checking account too, this will contribute to your credit history building process. Since any transactions made with this accounts will be recorded and reported to credit agencies.

If possible ask for a credit card, use it for daily expenses you would otherwise pay in cash and pay the full balance when the credit card payment is due. This will be recorded into your credit history too and will raise your credit score significantly.

The next step would be to find a lender, the smartest thing to do is to request one first at the financial institution where you opened the accounts. However if you can't get approved there, you may want to try applying with other lenders. There are many online car loan lenders dealing with bad credit car loans specially designed for those with bad credit, no credit or even bankruptcy.

Getting recommendation letters from your employer and from any creditor that doesn’t report to credit agencies stating that you are a good payer, will greatly improve your chances of getting approved for a loan. It may sound a idealistic thing to do but I assure you that the lender will take those letters into account too when making a decision.