How You Can Finance A Car With No Credit
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If you have no credit, getting a car might seem out of reach for you, but that’s not entirely true. You still have options even with poor credit or no credit history.
While financing a car can be more expensive with a bad credit auto loan, there are several ways that you can reduce the impact of a poor credit score.
Whether you get a cosigner, improve your credit, or take advantage of special financing, you can overcome the obstacle of financing a car with no credit.
Can I Finance A Car With No Credit?
The short answer is yes. However, you may end up paying a higher interest rate than someone with good credit. Taking the time to build your credit history can save you tons of money in interest, so it’s worth looking into.
If you haven’t already, you can pull your free credit report from annualcreditreport.com. You can also check your report through any of the three major credit bureaus to see what’s currently sitting in your credit history.
Your credit report helps lenders determine how risky it is to finance a vehicle for you. For someone with no credit history, lenders will compensate by attributing a higher interest rate on the vehicle loan if they approve you. That means higher monthly payments for you.
Having no credit doesn’t equate to no options. There are other routes you can take to drive off in the car you want. With no credit or a low credit score, you’ll have to put in some additional effort to find auto financing. You may even look into how to lease a car with bad credit.
One of your options is a guaranteed auto loan and the other is a subprime car loan.
A guaranteed auto loan is usually offered by lenders and dealerships catering to people with bad credit scores or no credit. These loans don’t require a credit check. Instead, they use alternate methods to ensure you’ll be able to repay the loan.
They’ll use your employment history, proof of residence, and income information to decide on lending to you.
Subprime auto loans are built for people with inconsistent credit information on their report, poor credit, or no credit. Subprime auto loans still require a credit check, unlike a guaranteed auto loan.
With both options, you’ll likely have a higher interest rate to account for the lack of credit history. And depending on the criteria used, you could still get declined for the auto loan.
Things You Can Do to Improve Your Approval Odds
According to Experian, there’s no minimum score needed to be approved for a car loan. You’ll just have to search for the right lender to get approved for the car you want. That doesn’t mean you shouldn’t improve your score to get the best possible financing terms on your auto loan.
But building your credit history takes time. If you’re pressed for time, there are few ways you can improve your odds before heading to the dealership. You might choose to get a cosigner, find special financing options, save up a larger downpayment, or try your luck with a credit union.
Get a Cosigner
Using a cosigner can help you qualify for car financing you wouldn’t have been able to get on your own. However, this can be a double-edged sword if you aren’t being responsible.
If you do well and pay your car note on time, it works to build both your credit and your cosigner’s. If you miss a payment or make late payments, it can negatively affect your cosigner’s credit.
Defaulting on the loan makes your cosigner responsible for the remainder of the car payments. Not keeping up with the monthly payments can mean credit problems for both you and your cosigner. Defaulting causes serious damage to your credit history.
Of course, if someone is kind enough to cosign for you, make sure not to punish them for their good deed. It’s in both of your best interests to make your monthly payments on time.
Build Your Credit
If you have several months between now and putting a loan application in for financing at the dealership, you might not need to finance your loan with bad credit or no credit.
You can take steps to boost your credit rating and get better rates on your car loan without a cosigner or a large down payment. At this point, you’re likely asking yourself, what is a good credit score to buy a car?
The best credit score is the one that gets you the loan terms and monthly payment you want.
It all starts with monitoring your credit and finding out what’s currently on your credit report. Once you see what’s there, any legitimate errors can be disputed which can work wonders on your credit history.
If you have someone you trust, you could ask them to add you as an authorized user to their credit card. This allows their on-time payments to their credit card to show on your credit history and boost your score.
Be careful! Any late payments they make could do more damage to your credit history.
The best option for borrowers with no credit is to get a credit builder loan with Credit Strong. Build up to $30,000 of credit history and choose from a range of credit builders for every budget and need.
Take Dealer Financing Into Consideration
Many car dealers offer in-house financing options in the form of “Buy Here, Pay Here”, or “Tote the Note” programs.
These are guaranteed auto loans and are backed by your employment verification, income information, and primary residence history as mentioned earlier. In many cases that information takes the place of your credit score.
Typically when you head to the dealership for financing, they’ll run your credit application past multiple lenders to see which auto lender will work with a low credit score. This can work for some, but you may end up paying more with bad credit financing through the dealer.
Some car dealerships and auto financing companies will also have special financing options for students and recent graduates where your GPA can be taken into consideration along with other factors.
You’ll also want to ask the finance department if the loan will be reported to the major credit bureaus as some in-house financing companies won’t report your payment history to them.
The catch with these programs is that you won’t be taking home a brand new car as they only allow that type of financing on pre-owned vehicles.
Consider Credit Unions
Unlike major banks and financial institutions, local credit unions often have more lenient credit requirements. If you already have existing accounts in good standing with them, they’re more likely to lend you the money for your car through programs for consumers with bad credit.
Certain loan programs through credit unions will consider whether you have a steady job, rent payments, major utilities, as well as your pay stubs to qualify you for a car loan. Depending on the credit union, you may even find a lower interest rate than you would get at the dealership.
Make a Bigger Down Payment
By making a bigger down payment on the car you want, you’re lowering the amount you would need to be approved for through financing. It also lowers your monthly payment and ensures that you are not underwater on your vehicle loan.
A bigger down payment also gives you better leverage even with bad credit car financing. In many cases, the finance team will be more willing to work with you on the loan since you’re coming in with money upfront.
FAQs
Is it hard to get financed with no credit?
It might be more difficult to get financing with no credit or poor credit, but it’s not impossible. You have to find the right auto financing deal for you.
Look for lenders and dealerships that specialize in working with subprime borrowers or people with no credit for your best approval odds. Just be diligent about looking for the best interest rate as most places will charge higher interest for those with no credit.
How can I finance my first car with no credit?
There are several ways that we’ve discussed financing a car with no credit. These options will either waive the option for a credit check with other qualifying documentation or use another person’s credit as a stand-in for yours. They include:
- Consult a credit union for special programs for buyers with no credit
- Save up for a bigger downpayment
- Use a cosigner
- Consider a “Buy Here, Pay Here” program through the dealership
- Improve your credit with a Credit Builder Loan
- Get added as an authorized user to a credit card
How can I get a car with no credit or cosigner?
Your options without a cosigner and no credit are more limited, but the best option would likely be to improve your credit before going to the car dealership. That allows you to avoid the extra interest that comes with a bad credit car loan.
You could also make use of the “Buy Here Pay Here” Program at the dealership. Just check with the finance team to ensure that your payments for the vehicle loan are being reported to the major credit bureaus.
There might also be special financing programs to take advantage of through credit unions such as student or graduate financing offers, and no credit borrower programs.
CreditStrong helps improve your credit and can positively impact the factors that determine 90% of your FICO score.
