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It’s possible to buy a car with no credit, but your financing options may be limited, and you’ll likely face challenges that consumers with a solid credit history may not encounter.
Lenders typically prefer applicants who have an established pattern of responsible borrowing and making on-time payments. But there are lenders that may be willing to work with you if you have little or no credit. Just be prepared to potentially pay more in interest than someone with a long credit history and high credit scores.
Let’s take a look at why lenders care about your credit history, where you can shop for a car loan if you have no credit, and what to consider before applying.
Why your credit history matters
When you submit a loan application, lenders want to be reasonably sure you can repay it on time before determining whether to approve you for a loan. Your credit history is one of the many factors they review to determine your credit risk.
If you’ve never used credit before or haven’t used enough to establish a history of consistent, on-time payments, you may be considered a higher risk to lenders and you’ll likely pay a higher interest rate — which will mean higher monthly payments and more interest paid overall.
Since lenders typically run a credit check as part of their application process, it’s a good idea to review your credit reports before you start shopping around for a new car or financing options — even if you think there’s nothing on them. It will give you an opportunity to ensure the information is accurate and dispute anything that’s incorrect before you apply for a loan.What's the minimum credit score needed for an auto loan?
Where can I shop for an auto loan with no credit?
Shopping for a car loan with no credit may be difficult, but it’s not impossible. Here are three options to consider.
1. Lenders that work with all credit profiles
The good news is there are lenders that specialize in offering car financing to people who have no credit or bad credit. But while you won’t need an established credit history to apply, you may need to prove that you have a steady source of income to show that you can make your payments on time. And depending on the lender, you may be limited to buying a car from a dealership within the lender’s network.
2. Special financing offers
If you’re a student or recent graduate, you may be able to qualify for special financing. Some lenders and automakers have programs specifically designed for students and graduates with little or no credit history. Some of these programs use other factors, like income, down payment amount and GPA, to make lending decisions.
3. Credit unions
Credit unions have a reputation for being more willing to work with applicants who have experienced financial difficulties in the past or don’t yet have a robust credit profile. Some even offer credit-builder auto loans designed to help you purchase a car and build credit at the same time. Consider checking with a credit union in your area for financing options. Just remember: You’ll need to be a member of a credit union before you use its services.
Ways to help increase your car loan approval odds
If you have no credit, there are some things you can do that might help improve your chances of being approved for auto financing.
Get a co-signer
Consider asking someone you trust to co-sign the loan with you. Depending on their credit situation, it may improve your chances of being approved and help you qualify for a lower interest rate. Remember, a co-signer agrees to repay the loan if you’re unable to, so it’s not only your credit that’s at risk — theirs is, too.
Secure a consistent paycheck
While a lender may be willing to work with you if you don’t have an established credit history, it’s unlikely it’ll give you a loan if you can’t repay it. Make sure you have a reliable source of income before applying.
Make a down payment
In some cases, the lender may require a down payment, especially if you’re participating in a special financing offer for students or recent grads.
When you make a down payment, you end up borrowing less, which may decrease the cost of the loan since you’ll pay interest on a smaller loan amount. Plus, putting money down may help prevent you from becoming upside down on your loan.
Eligibility requirements vary from lender to lender. Shopping around allows you to compare loan offers and help you find the best interest rates and loan terms available to you.
Build your credit
If you can put off buying a car, taking the time to establish a solid credit history may be a good option. Financial institutions offer products — like credit-builder loans and secured credit cards — that are designed to help people build credit. Though you’ll want to check that payments for these accounts will be reported to the three major consumer credit bureaus each month.
You may also consider becoming an authorized user on someone else’s credit card. Some credit card issuers report the primary account holder’s activity to the credit bureaus in your name as well. Be sure to check with the credit card company to find out.
And beware: Becoming an authorized user will benefit you only if the owner manages their card carefully, including paying their bills on time and not maxing out their card.
Take an honest look at your situation and decide whether you must get a car now or if you can wait until you’ve had a chance to build your credit history.
If it can’t wait, review your budget to determine how much car you can afford, and stick to that number. And remember to shop around for loans. Applying for prequalification can also help you compare loan rates and terms without a hit to your credit.