How to Get a Car Loan With No Credit History
Even if you have no credit history, buying a car with an auto loan is still possible. But without strong credit, you’re likely to pay a higher interest rate, unless you make a larger down payment, use a cosigner or find another way to keep your loan affordable.
Here’s how to get a loan for a car with no credit and what to watch out for.
Key takeaways
- Borrowers with no credit might still be able to get an auto loan from a dealership, bank, credit union or online lender.
- To improve your chances of getting approved, consider making a large down payment or finding a cosigner.
- Research and compare all your financing options before visiting a dealership, as they may not offer the best deal.
- If you have the time to build your credit first, you could save money with a lower interest rate.
No credit vs. bad credit
Having no credit is very different from having bad credit.
- No credit means you have little to no borrowing history, making it difficult for lenders to judge your ability to repay your car loan.
- Bad credit means you have late payments or defaults, making you a higher risk for lenders.
While both situations can complicate the loan approval process, they present different challenges.
Borrowers with poor credit can generally expect higher interest rates, as lenders offset the increased risk of a “bad credit car loan.”
Having no credit may also result in higher rates, but a large down payment or creditworthy cosigner might make a bigger difference.
In either case, borrowers may need to explore specialized lenders or programs for people with limited or poor credit histories.
Financing a car with no credit
Getting a car loan with no credit can be challenging, but it’s not impossible. Try some of these strategies to help get the best deal for you.
Check your credit report
Checking your credit history and credit score is easy and costs nothing. You can get your credit info for free via LendingTree Spring or order a credit report from the three main credit reporting bureaus (Equifax, Experian and TransUnion) by visiting AnnualCreditReport.com.
Besides seeing the health of your credit, you can also look for any mistakes in the report that might hurt your chances of getting a loan.
Find your best no-credit loan
Take the time to look at your financial situation and how much you can afford to pay. Try using our car affordability calculator to get a sense of what your monthly payment might be.
Once you’ve crunched the numbers, start shopping for loans with dealerships, banks/credit unions and online lenders.
Read more to find out how to get a car loan as a student.
Dealer financing
One way to get a loan for your new car is to go directly through the dealer, who will contact multiple lenders for you.
An auto loan with a dealership is convenient, although sometimes the interest rate may be marked up, making the loan more expensive. And without good credit, you’re unlikely to get any special advertised deals, such as 0% financing.
Bank or credit unions
If you have an account with a bank or credit union, you may be able to get a car loan from it directly. Since you’re already a customer, it might be more open to lending to you, even if you have little or no credit.
If your bank is willing to lend to you, see if you can get preapproved for your car loan and then compare its terms with what the auto dealer is offering.
Online lenders
Going online to shop for your car loan is convenient and allows you to compare multiple lenders at once. You can use a marketplace like LendingTree to apply to several online lenders — try out the slider below to see what’s available.
If, on the other hand, you use a search engine to find possible lenders, make sure you also check each lender’s customer reviews to be certain it’s legitimate.
Negotiate a better deal
No matter where you look for your loan, try to negotiate. You might be able to offset your lack of credit with proof that you have a solid income and pay your bills on time. Bring documents like recent pay stubs, a job offer letter or even recent utility and phone bills.
Likewise, negotiating a deal on your car price is always important, no matter what your credit is like. Research the car’s market value ahead of time so you know what you should be paying.
Make a bigger down payment
If you have no credit history, your lender may ask you to make a larger down payment to help reduce its risk. This can make lenders more willing to approve your loan and maybe even offer a lower interest rate.
Borrowing less money also means lower monthly payments, making the loan more manageable.
Paying cash for a car
Paying cash for a car means no interest cost and no stressful monthly payments. But it also means you won’t be building credit. If you’re trying to establish or improve your credit history —and you have some savings — consider making a large down payment and then borrowing the rest.
Get a cosigner
Having a cosigner on your car loan can greatly increase your chances of getting approved, as well as possibly getting you a lower interest rate than you would have on your own.
Just remember that if you miss any payments or default on the loan, the cosigner will be responsible. They could take a hit to their credit, and the situation may strain your relationship with them.
Wait to buy
If you’re not in a rush to buy a car, waiting to build your credit history first can be a wise move.
You could open a credit card or take out a small loan to improve your credit profile. This can lead to better loan terms and lower interest rates when you do buy your car.
Beware of buy here, pay here financing
Buy here, pay here financing may seem convenient if you’re short on time or you don’t have the cash for a large down payment, but beware: This type of financing has some serious drawbacks.
The interest rates and car prices may be very high, and the dealer could install a device on your car that can disable it if you miss a payment.
Also, some dealers don’t report your payments to the credit bureaus, so this kind of financing won’t help you build credit.
Which no-credit car loan is best for you?
To find the best no-credit car loan for you, start by researching your options. You can check out our list of best auto loan rates and apply to as many as five lenders.
The more options you look into, the better your chances of finding a good car loan with no credit history.
Frequently asked questions
Getting a car loan with no credit can be tough, but it’s not impossible. You can explore financing options through banks, credit unions, dealerships and online lenders.
There is no specific credit score needed to get a car loan. Most lenders prefer scores above 660, but many will work with borrowers with bad or no credit. Of course, a lower credit score will usually make it more difficult to qualify for a loan.
It usually takes at least six months to build your credit and positively impact your score. But it’s worth the effort, since a strong credit profile can lead to lower interest rates and better access to credit.