If you're a first-time car buyer with little or no credit history, you may find that it's difficult to get a car loan. Using a co-signer is one way to improve your chances of approval, but not everyone has this option.
Fortunately, there are ways to get approved for an auto loan with no credit and no co-signer. Here’s what you need to know.
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Challenges of Getting a Loan with No Credit
It’s not impossible to get a car loan without a credit history. However, it’s much harder to get approved and you will probably pay a higher interest rate. Depending on the amount of money you need to borrow, you might also get stuck with an expensive monthly payment.
Lenders look at your credit history to determine how responsible of a borrower you will be. Essentially, lenders are looking for evidence that you will pay them back in full. Having good credit proves that you are financially responsible and can pay your bills and other loan payments consistently every month.
Having no credit can make it difficult to get a car loan, but so can having bad credit. If your credit score is low, lenders don’t consider you to be a strong borrower. Having bad credit may not disqualify you from getting an auto loan, but your interest rate will probably be pretty high.
How to Get a Loan with No Credit and No Cosigner
If you have no credit or poor credit, using a co-signer is one way to get an auto loan. Usually, this individual has a strong credit history and a good credit score and agrees to take over the loan payments if you default.
However, not everyone has access to a co-signer with good credit. If you have no credit history and you can’t get a loan with a co-signer, here are some options you might consider:
- Look for subprime lenders: Borrowers with bad credit or no credit might have success applying for an auto loan through a subprime lender. These lenders specialize in giving loans to people with bad credit. Subprime lenders usually have less strict eligibility requirements, but the interest rates are typically extremely high.
- Making a substantial down payment: Making a big down payment on your vehicle is another way to increase your chances of loan approval with no credit and no cosigner. If you can afford a large down payment, it shows the lender that you have sufficient funds. You might also qualify for a lower interest rate if you only need to borrow a small amount of money.
- Consider a Buy Here Pay Here program: Even with no credit history or a low credit score, you might find luck with a Buy Here Pay Here (BHPH) program. These programs, which are usually offered through dealerships, have some requirements. But once you’re enrolled in the program, a cosigner isn't necessary.
Buy Here Pay Here Loan Programs
Some car dealerships provide programs for borrowers with poor credit or no credit history. It’s often known as In-House Financing, Tote the Note, or Buy Here Pay Here (BHPH). Usually, this type of loan is only available for used cars. If you are wanting to buy a brand-new car, you may have to rethink using in-house financing.
To become eligible for a BHPH program, you must prove your employment history. The dealer also looks at your overall income, how long you've been employed, and whether you rent or own your primary residence. Borrowers with a consistent income and long employment history usually have an easier time getting approved.
If you get approved through a BHPH dealer, be prepared for high-interest rates. However, making a large down payment on the vehicle can reduce the amount of money you have to spend overall.
If you're trying to build credit, be sure that the dealer offering the BHPH program reports your payments to the credit bureaus. As you make on-time loan payments, you will develop a credit history and improve your score.
Other Loan Options
As a car buyer with little or no credit history, there may be other options besides subprime loans and BHPH programs. For example, if you’re a student or recent graduate, you might be able to find special loan programs for students. Instead of looking at your credit history, the lender considers your income, GPA, and your down payment.
If you're a member of a local credit union, you can check with them to see if they have special financing for borrowers with no credit or poor credit. Having an established relationship with the credit union can come in handy. If you have sufficient funds in your bank account, the credit union might be more willing to approve you.
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.
FAQs
If you have no credit history and you can't get a loan with a co-signer, here are some options you might consider: Look for subprime lenders: Borrowers with bad credit or no credit might have success applying for an auto loan through a subprime lender. These lenders specialize in giving loans to people with bad credit.
How should you go about buying a car when you have no credit history? ›
If you're looking to buy a car with no credit, here are some helpful steps to follow:
- Figure Out How Much You Can Afford. ...
- Check Your Credit. ...
- Find a Lender That Works With All Credit Profiles. ...
- Consider a Co-signer. ...
- Make a Larger Down Payment.
Four Alternatives to Having a Co-Signer
- Become a Subtenant or Roommate. ...
- Use a Co-Signer Service. ...
- Try a Peer-to-Peer Lender. ...
- Establish or Rebuild Your Credit History.
Generally, a cosigner is only needed when your credit score or income may not be strong enough to meet a financial institution's underwriting guidelines. If you have a stronger credit score, typically 650 and above, along with sufficient income to cover the loan payment, it's likely you will not need a co-signer.
How much should you put down on a $12000 car? ›
How much should you put down on a car? A down payment between 10 to 20 percent of the vehicle price is the general recommendation.
How to get a loan with no credit and no cosigner? ›
Ways To Get a Personal Loan With No Credit History or Co-signer
- Secured Loans. You may be able to qualify for a secured loan, which is backed by collateral such as your savings, vehicle or another asset. ...
- Online Personal Loans. ...
- Credit Union Loans. ...
- Payday Loans.
Although requirements can vary by lender, a cosigner typically needs to have good to excellent credit (670 and up) to cosign a loan or credit line. Lenders look at a cosigner's credit score and report as well as their income and assets to determine whether they qualify for a loan.
What if I can't find a cosigner for a car? ›
If you have bad, little, or no credit but don't have a cosigner available, you can still buy a vehicle, but your financing options are limited. In most cases, your next option is to find a buy here pay here (BHPH) dealership. BHPH dealers finance cars in-house, so everything is done in one place.
What happens if I can't get a cosigner? ›
If you can't find a co-signer for a loan you may still have options that can help you achieve your goals. Whether they include borrowing from a friend or family member, or working to establish your credit history, working on your credit might eventually eliminate your need for a co-signer.
Can a car be sold without cosigner? ›
Even though you both own the car, you may not both need to be present when you sell or trade the vehicle. When you need to sell the car but the co-borrower can't be there, you may be able to sign over the title without them, but you can't do it without their permission.
What minimum credit score is needed to buy a car? There isn't one specific score that's required to buy a car because lenders have different standards. However, the vast majority of borrowers have scores of 661 or higher.
What credit score is needed for a 20000 loan? ›
Requirements for a $20,000 Personal Loan
This means they'll want to see your credit score, income level and DTI ratio. Requirements vary by lender, but most lenders require borrowers to have a credit score in the good to excellent range — meaning a score of at least 670.
Does a cosigner need to be present to buy a car? ›
The co-signer doesn't necessarily have to be present during car shopping, but they will need to be there when it's time to apply for the loan. The lender will need the co-signer's permission to check their credit for approval. 3 Once approved, they'll need to sign the loan documents along with the other borrower.
What is a realistic down payment for a car? ›
The typical down payment on a car ranges from 11% to 20% of the car's value. The credit bureau Experian says a 20% down payment might help shield you from depreciation. Depreciation refers to the ever-shrinking value of your car. The value of a new car declines about 20% in just the first year.
Is $2,000 a good downpayment for a car? ›
If you're considering a car that costs $25,000, putting down between $2,000 and $4,000 would be wise. However, the true answer to this question depends on your negotiation strategy. If you can negotiate a lower price or better terms, putting more money down may not save you much interest.
How much would monthly payments be on a $25,000 car? ›
Example: A six year fixed-rate loan for a $25,000 new car, with 20% down, requires a $20,000 loan. Based on a simple interest rate of 3.4% and a loan fee of $200, this loan would have 72 monthly payments of $310.54 each and an annual percentage rate (APR) of 3.74%.
Can I buy a car if I don't have a credit score? ›
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.
How much credit history is needed to buy a car? ›
Most used auto loans go to borrowers with minimum credit scores of at least 675. For new auto loans, most borrowers have scores of around 730. The minimum credit score needed for a new car may be around 600, but those with excellent credit often get lower rates and lower monthly payments.
What credit score do you start with? ›
Instead of starting from the bottom, you'll actually start with no credit score instead — and that's not as bad as you might think.
How long does it take to build credit? ›
It usually takes a minimum of six months to generate your first credit score. Establishing good or excellent credit takes longer. If you follow the tips above for building good credit and avoid the potential pitfalls, your score should continue to improve.
