Credit is a huge part of buying a car in most situations, and if you have no credit history, you might wonder how you'll fare in the auto loan market. You can buy a car with no credit, but we'll be honest: Buying a car with no credit is much harder. You'll probably have fewer options, and it can take some research. But it's possible to buy a car with no credit.
Purchasing a car with no credit requires knowledge, financial stability, and clever strategy. Plus, it depends on your situation.
Do you have the cash to spare? Are there financially-responsible people in your life who can help you? What type of car do you want? Answering these questions can help you pick the best route to buy a car with minimal credit.
Why Is Credit History Important for Car Buyers?
Credit history matters to lenders because they view it as evidence of your financial habits. They typically want to see that you pay back your debts. Plus, they want to know that you have experience managing loans and credit accounts.
Viewing your credit history also helps them understand your current financial standing. Lenders might worry that people with a lot of debt might be unable to afford another sizable monthly payment. As a result, lenders usually want to know how much you owe on other loans.
If you get approval to take out an auto loan, your credit history influences your interest rate. Most lenders offer lower interest rates to people with excellent credit histories, while people with substantial debt usually receive higher interest rates.
Therefore, it's vital to understand what's on your credit report, improve it if you can, and target lenders who welcome borrowers with limited credit history.
Where to Buy a Car With No Credit
New borrowers can buy a car with no credit but you might have to try a few places. Some financial institutions are more flexible than others. Explore the options for financing a car with no credit history:
Banks
Banks grant auto loans regularly to qualified buyers. However, you usually need proof of responsible borrowing for the bank to approve you for an auto loan.
Each bank has its standards, so talking with multiple banks might help you find one that can work with you. Consider how to prove you're financially responsible in other ways, like showing proof of consistent income or regular on-time rent payments.
Credit Unions
A credit union is usually a friendlier option than a bank for a car buyer with no credit history. These institutions are nonprofits that share their profits with their members.
They're usually personable, and the representatives are often more open to working with people with minimal or imperfect financial backgrounds. Make an appointment with your local credit union to learn about your ability to secure a car loan.
Credit unions also sometimes offer credit-builder loans. While taking out a car loan and paying it back helps boost your credit score, these loans help borrowers with minimal or poor credit history improve their standing. The credit union then reports your monthly payments to the credit bureaus, helping you build a more impressive profile.
Online Lenders
Online lenders are financial institutions that operate on the web and provide financing to borrowers who meet their terms. Criteria vary between lenders, but online lenders sometimes offer loans to buyers with little to no credit history. Some online lenders charge high interest rates to buyers with suboptimal credit, so beware of predatory lending.
Independent Sellers
You can skip applying for auto loans if you buy a car outright from an independent seller. You can find people selling their vehicles on internet forums, social media, or around your neighborhood. These used cars are often cheaper than cars at a dealership.
Buying third-party has risks, though. Survey the car and take it to a mechanic for an inspection before buying. You might even ask the seller to provide a vehicle history report. If you find a reliable vehicle at a price you can afford, buying from a person instead of a company can be a good option for people with little to no credit history.
"Buy Here, Pay Here" Financing
"Buy here, pay here" plans allow you to finance your car directly with the dealership. Interest rates are usually unfavorable, so shop around before committing to dealer financing. Plus, you're subject to the dealer's policies, which might not be in your best interest.
Tips for Buying a Car With No Credit History
Follow these guidelines to maximize your chances of success when car shopping with no credit history:
Check Your Credit
Even if you've never borrowed money, check your credit history anyway. It's important to know what lenders see when they review your information. You can request a free copy of your credit report once per year.
Credit scores run from 300 to 850. Most experts agree that a score of 600 or more will help you get an auto loan. Remember, some lenders focus on approving buyers with subprime credit, so 600 isn't a hard limit.
Get a Good Deal
Minimize the amount you need to borrow if possible. Lenders might be more comfortable approving you with no established credit history if you ask for a reasonable amount within your budget.
Make sure you're not falling for dealership markups. Use Kelley Blue Book to determine the market value of the make, model, and year you want. You'll discover plenty of ways to find a bargain on a new or used car, including:
- Taking advantage of promotions
- Shopping for a used car
- Comparing prices from multiple dealerships
- Negotiating the purchase price
- Leveraging competitive offers
Put More Money Down
One way to earn lenders' trust is to make a significant down payment. A substantial down payment minimizes the size of your loan and shows lenders your financial stability.
Experts usually recommend making a down payment that's 10 percent to 20 percent of the car's purchase price.
If you can commit to a larger payment, it might benefit you. If you can wait a bit to buy your car, you can spend that time setting aside money for your down payment if your finances allow it.
Find a Cosigner
Cosigners are an excellent way for new borrowers to supplement their credit history and qualify for a loan. A cosigner is a person who agrees to pay off your auto loan if you default on your payments.
It requires trust, so it's usually best to choose someone with whom you have a close relationship. Many people ask a parent, partner, family member, or close friend to co-sign a car loan for them.
Your cosigner must have a good credit history, too. Some experts recommend choosing a cosigner with a credit score of 660 or higher. It's also essential that they're able to take on debt. The loan appears as debt on their credit report even if you're making the payments, and they co-sign as a formality.
Getting a cosigner can be a responsibility for you, too. Any missed or late payments can affect your cosigner's credit. To avoid damaging both your credit reports, pay your monthly payments diligently.
Build a Credit History
If you dedicate some time to building credit before you buy a car, you might qualify for car loans with better terms and lower interest. Actions to take could include:
- Getting a credit card: Using a credit card for small, routine purchases like groceries and gas and paying off the monthly balance can improve your credit. You might have to start with a secured credit card requiring a down payment.
- Become an authorized user: Someone you trust can add you as an authorized user on a credit card account, allowing purchase and payment history to influence your credit. Choose someone with reliable financial habits to ensure it benefits you.
- Pay bills on time: Payment history is an essential component of credit reports, so make sure you pay all bills in full and on time. Even if the bill doesn't report to consumer reporting agencies, it can help you build good credit habits.
- Make rent payments count: Rent and utilities rarely affect your credit, but you can sometimes request that the creditor report your payments to the credit bureaus. Note that this option isn't always possible, and you may have to pay a fee.
Pay Cash
Another way to purchase a car with no credit is to buy a car with cash. This option relies on having a healthy amount of liquid money, and it might not be an option in every scenario. Paying cash is probably easiest if you're eyeing a used car.
For example, many dealerships have inventories of vehicles less than $15,000 or even $10,000 for budget-conscious buyers. You can also work with an independent seller or haggle to obtain a lower price.
Cash payments might be trickier if you want a new car, especially a luxury vehicle or a large SUV. But it's certainly possible if the purchase is within your budget. Being a cash buyer at a dealership presents several advantages:
- Minimal depreciation: All cars lose value during their life, but paying outright means your car won't depreciate faster than you can pay it off. That means no chance of negative equity.
- No interest: Avoiding an auto loan means avoiding interest. That means your car costs less in the end.
- Easy budgeting: Paying in a lump sum of cash might help you stick to your budget at the dealership. Striking features and upgrades might sound nice when you pay them off over time, but they might not be worth it when you're paying all at once.
Prove Your Income
You also must state your employment status and income to get a car loan. If you have a job and earn enough to afford monthly payments comfortably, this capability might sway the lender to view you as a reliable borrower. Make sure your work history is reliable when applying for an auto loan with no credit.
Is No Credit the Same as Bad Credit?
Lenders don't view no-credit applications and bad-credit applications the same way. People with extensive credit histories and poor credit scores typically appear fiscally unreliable to creditors.
If you're new to borrowing, especially if you are a young borrower, creditors are often more understanding. You don't seem irresponsible; they don't have any evidence that you're not.
Steps to Take to Buy a Car With No Established Credit History
Consider the following steps to take toward getting behind the wheel of a car:
- Decide if you want to finance a car: Weigh the pros and cons of financing versus paying cash. Make the decision that works best for your goals and budget.
- Determine your budget: Decide how much you can afford to borrow or spend. If you're planning to get a car loan, consider the amount of debt you're comfortable with and the monthly payment you can afford.
- Research your options: Learn what lenders might be open to working with low-credit or no-credit borrowers. Remember to visit your local credit union.
- Apply for pre-qualification: Pursue pre-qualification. When you do, lenders can check your credit score and estimate if they can approve you. Pre-qualification doesn't affect your credit score. In turn, lenders can help you set your expectations.
- Compare quotes from lenders: Review them once you find multiple lenders likely to approve you for a car loan. Consider the interest rate, loan term, and monthly car payment to determine which one is the best deal.
Elizabeth Rivelli
Finance & Insurance Editor
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.
