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No Credit Financing - The Straight Truth on No Credit Financing - Bad Credit? No Credit? No Problem! (For us…)

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If you haven’t been living under a rock, chances are you’ve heard about no-credit financing before. Just about every used car dealership out there has had an ad campaign at one time or another touting its loan programs that don’t require a credit history. Sounds good, right? But what does this really mean to you? Is it really too good to be true? Well, as you’ll find out in this article, there is always a catch.

Bad Credit? No Credit? No Problem! (For us…)

Sure, you can find plenty of dealerships, retail stores, and credit card companies that offer you guaranteed approval for set amounts of money. But the very fact that it’s “guaranteed” should raise some red flags in your mind. Why is it “guaranteed” for all comers regardless of credit? There has to be another shoe waiting to drop, right?

There sure is, and it’s called interest. The plain and simple fact is, without much of a credit history, your interest rate is going to be higher than the norm, which means that you will pay more money over the lifetime of your loan. This is a fact of life. But still, that doesn’t mean that you should shrug your shoulders and accept the first offer that you get. It’s precisely because you don’t have much of a credit history that you will want to search around to find the best rates – even a fraction of a percent can translate into a surprising amount of money over the life of the loan.

You should also pay special attention to the fine print in agreements with companies that advertise themselves as “no-credit loan” purveyors. In order to cover the extra risk associated with no-credit borrowers, most companies will add extra-harsh penalties for defaulting on payments. Even missing one or two could land you with heinous late fees and double-digit interest rates, and you don’t want that!

How to Make the Best of it

If you already have a high-interest auto loan or other debt, don’t fret too much. If you just concentrate on making payments, you will be building credit that will lower any future interest rates that you receive (even if you’re doing it at a premium price). And you always have the option of paying more than the loan amount each month to get rid of the loan faster – doing this can save you a bundle on interest fees in the long run. If you need to get financing quickly and don’t have time to build credit the proper way, then at least plan to make accelerated payments to minimize the damage. But do yourself a favor and take the time to really examine your situation. Really ask yourself whether or not you “need” financing right away. Most of the time, with a little creative thinking you’ll discover that you can find ways around resorting to credit.

How to Build a Better Credit History

Rather than starting your credit history with a set borrowed amount like an auto or mortgage loan, it’s usually a good idea to try a credit line instead. For example, if you can find a credit card with low or no annual fees, then you can simply use a little every month and pay it off immediately to avoid incurring the higher interest rates. This way, you can build up credit that will save you quite a bit of cash on interest when it does come time to request financing. Try a site like Bankrate.com to compare different rates and terms on credit cards. After a few months to a year of regular payments, you will at least have some evidence of reliability on your history, which will give you points with potential creditors when you go in for financing something bigger like a car or house.

Check out the Federal Trade Commission’s site for in-depth advice on building a sound credit history. Starting long before you ever even need credit is the best policy, but it’s still better late than never if you plan to obtain financing.

We hope this guide to no-interest credit has been useful and informative for you. As with all matters of credit, err on the side of caution, and always make sure to read the fine print!

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