Whether you’re buying your first car or looking for an upgrade, you may need an auto loan to get behind the wheel.
A lender will use a borrower’s credit history and credit scores to determine how reliable they are at repaying debt. Without that history, it’s harder for lenders to determine creditworthiness.
However, lenders can look at more than credit history to see if you qualify for an auto loan. They can look at your income, bank account balances and employment history.
If you have no credit history, we’ve put together some strategies to help you qualify for a car loan, and we show you where you can shop for a car loan with no credit.
No Credit vs. Bad Credit
When it comes to qualifying for a loan, it’s important to note that having no credit is different from having bad credit.
- No credit: Maybe you’ve never opened a credit account or taken out a loan. While that can make it harder to be approved for a loan, no credit may look better to a lender than bad credit.
- Bad credit: Getting an auto loan with bad credit can also make it harder to be approved. Bad credit demonstrates a less-than-stellar record of paying off your debt or irresponsible debt management. This can look worse to lenders than no credit.
How Do You Get a Car Loan With No Credit?
There isn’t one clear cut way to get a car loan with no credit, but there are things you can do to help qualify for one. Use the strategies we’ve outlined below to see what works best for your financial situation – and you’ll be well on your way to cruising down the highway.
If you want to get the best deal for your budget and currently nonexistent credit history, shop around. Look at different lenders and different loans.
Eligibility requirements and loan terms will vary by lender, so make sure you compare your options before applying. Look at each loan’s interest rates, associated fees and repayment terms as well as what you need to qualify for that loan.
You should also shop around and compare cars. Are you willing to cruise past the “new, new” on the lot and idle around the certified preowned or used cars instead? You may even be able to skip the dealer altogether if you buy a car that’s being sold by its owner. Private sellers typically offer lower sales prices than dealerships, so if you do need to take out a loan, you may not need to borrow as much money.
Find a co-signer
If you’re finding it hard to get a loan on your own, a co-signer may help you qualify. To increase your chances of getting a loan and/or a lower interest rate, ask someone with a high credit score and good credit history to be your co-signer.
Before anyone agrees to anything, you and your co-signer should know that if you can’t make your car payments, the co-signer has to repay the loan. A co-signer can’t co-sign and forget it, so choose wisely. The loan and your payment activity show up on their credit reports, too. If you miss payments, you’ll harm your credit scores – and theirs.
Increase your down payment
Putting down a large down payment will decrease the amount of money you need to borrow and may signal to lenders that you’re serious about buying. Because you’d be borrowing less, you’d be paying interest on less, saving you hundreds or thousands on interest over the life of the loan. If you have some money saved, see if it’s worth applying it to a down payment.
If you don’t have the cash, see if someone (like a friend or family member) would be willing to gift or lend you the money. Keep in mind that borrowing money from a friend or family member might put some strain on the relationship if you can’t repay the money they loaned you. So only ask for money if you’re prepared to repay it.
You may not have a lot of leverage with no credit history to back you, but it doesn’t hurt to harness the power of negotiation. A lender may be more willing to give you a loan if you’re looking to borrow a smaller amount. Since less money is on the line, they may be more willing to qualify you for a loan.
First, try negotiating a lower price at the dealership. And second, once you’ve been approved for a loan, try negotiating auto loan terms like a lower interest rate or a longer repayment period.
A longer repayment period means lower monthly payments, but it also means paying more in interest. A shorter repayment period means higher monthly payments, but you pay less in interest. Negotiate based on what works best for your budget.
Secure a consistent paycheck
When you have no credit, lenders will look at other financial information to figure out how likely you are to repay a loan, including your income. A consistent paycheck can help increase your chances of approval because it shows you have a reliable source of income and can repay the loan. And, depending on how much money you make, your income may help you qualify for a larger loan.
Check with lenders about their income requirements, but typically, verifying a steady paycheck is enough.
Wait until you build your credit
If you don’t need to purchase a car right away, consider building your credit and applying for a loan later. Building your credit can help you qualify for loans with lower interest rates and better terms that can save you money in the long run.
Some ways you can build your credit include:
- Getting a credit builder loan: A credit builder loan is a type of installment loan. Unlike a traditional loan that gives you the money upfront, the lender deposits your loan into an interest-bearing bank account while you make monthly payments on it. Once the loan is paid off, you get the money. You’ll build your credit by making consistent, on-time payments.
- Becoming an authorized user: A cardholder can add you to their credit card, giving you access to a credit card account. Payment activity on the account will likely be reported to the credit bureaus in your name and the primary cardholder’s name. Positive payment activity (aka on-time payments) can help you build credit and boost your credit scores. Just make sure you trust the primary cardholder. They are responsible for making payments, and their actions, like maxing out a card or not making payments, can affect your credit.
- Opening a secured card account: Getting a secured credit card, using it responsibly and making payments on time and in full can help you build credit. To open an account, you’ll provide an upfront security deposit to the credit card issuer. The security deposit is what establishes the credit limit on your card.
Bonus: Once you’ve established a credit history, getting a car loan can continue to help build your credit history.
Check your credit report
We get it, this step seems counterintuitive if you have no credit. But it’s important to routinely monitor your credit reports for errors as they can affect your ability to get financing.
You usually won’t have credit reports if you haven’t opened a credit account or taken out a loan yet. So if you have no credit but find out that you actually have credit reports, this could mean your information got mixed up with someone else’s (likely with a similar name), or someone has used your identity to open credit accounts.
If you don’t have credit, you probably won’t have credit scores either. That’s because the information in your credit reports is what credit bureaus use to calculate your credit scores.
Get in the habit of checking your credit report and credit scores often and dispute errors with that credit bureau.
Where Can You Shop for a Car Loan with No Credit?
So you have a car in mind, and now you need to know what financing options you qualify for. The good news is that some lenders will work with borrowers who have no credit history – but your auto loan options may be limited.
You can get an auto loan through:
- Dealers: It’s common for dealers to partner with lenders so buyers can get financing directly through the dealer. It’s convenient, and if you qualify, you may get approved on the spot. But dealers may mark up the interest rates lenders offer, and you may end up paying more in interest than if you got a loan from a lender.
- Online lenders: Online lenders are growing in popularity and are known to work with borrowers who have no credit or bad credit. Do your research. Make sure the lender is legit before you provide any personal information. Look at their customer support services and check out company reviews.
- Traditional banks: Banks and credit unions offer lots of financing options, and you can avoid added dealership markups (you’ll get the same perk with online lenders). In some cases, you may find it harder to qualify for traditional loans than loans offered by online lenders. See if the lender offers prequalification so you can get a better idea of what loans you qualify for and what your monthly payments might look like. If you’re interested in credit unions, you must be a member before you can apply for one of their loans.
Be careful with dealerships that offer “no credit, no problem” or “buy here, pay here” financing. These loan options can come with extremely high interest rates and extra fees. Some reputable dealerships offer this kind of financing, but your best bet is to always do your research and make sure you understand the loan terms before you sign on the dotted line.
No Gaslighting Here
When you’re shopping for a car loan, you’ll need to know two things: what your budget is and how you plan to repay the loan. Because you have no credit, you’ll need to provide financial data (like your income, bank account balances and employment history) to prove you make enough to afford the loan and that you’ll be able to pay it back on time and in full.
Don’t let dealers or lenders gaslight you. There are financing options available for buyers with no credit.