Buying a car is a major expense, which is why many take out an auto loan to finance the purchase. You’ll typically need good credit to qualify for a loan—so if you have no credit, getting the financing you need might seem unattainable. Thankfully, there are strategies that can help you buy a car without credit.
What Is Credit?
Credit is your personal qualification that allows you to either borrow money or buy something of value—such as a car—according to a financial contract. Under this kind of contract, you agree to pay back what you’ve borrowed in the future, typically with interest.
However, lenders don’t want to give away money that they can’t get back. This is why a lender will usually consider both your credit history and credit score to determine if you’re a good investment or not when it comes to taking out an auto loan—and almost any other kind of loan.
This is a record that demonstrates how well you manage debt. Your credit transactions, such as using a credit card to cover a purchase or borrowing money to buy furniture, are tracked by the three major credit bureaus—Equifax, Experian and TransUnion. They then compile this information to create your credit reports (one from each bureau), which lenders will look at to see if you’re a risky investment.
This is a three-digit number that’s based on your credit history.
FICO is the most common scoring model and uses a scale from 300 to 850. Lenders consider this score when deciding whether to approve you for a loan. The higher your credit score, the less of a risk you’re seen as. A good credit score is usually considered to be 670 or higher.
What Does It Mean to Have No Credit?
If you have no credit history, you fall into a category known as the “credit invisible.” This means you either haven’t used credit before, haven’t used it in such a long time that your previous history fell off of your credit reports or have a credit account that hasn’t been reported to the credit bureaus yet.
Having no credit history or a thin credit profile means there isn’t enough information to generate a credit score. This is common for younger people who haven’t established a credit history yet but can also impact older individuals as well as immigrants of all ages who haven’t used credit in their own name.
It’s also possible to end up as “credit visible” with a credit report but no credit score because you haven’t borrowed money or made any debt payments within the last six months. This is more prevalent among retirees who have paid off previous debts and haven’t opened new credit accounts since.
Can You Buy a Car With No Credit?
While credit is usually required to get an auto loan, it’s still possible to buy a car with no credit. However, your loan options will be limited.
Keep in mind, though, that having no credit is better than having a bad credit history. Bad credit can be caused by things like late payments, delinquencies or defaults, and it makes you look risky to lenders. Having little to no credit, on the other hand, simply means there isn’t enough information in your credit report for a lender to use when deciding whether you’re creditworthy—a term meaning the lender trusts you to pay back what you borrow.
Additionally, it’s typically easier and quicker to start building credit from scratch compared to repairing bad credit.
How to Get a Car with No Credit
If you’re looking to buy a car with no credit, here are some helpful steps to follow:
1. Figure Out How Much You Can Afford
Before you apply for any sort of financing, it’s important to first consider how much car you can afford. Be sure to take into account your regular monthly expenses—such as rent, utilities and groceries—to see what you can reasonably manage to spend on an auto payment as well as on things like gas, maintenance and car insurance.
You can use our auto loan payment calculator to estimate your monthly payments.
2. Check Your Credit
When you apply for an auto loan, you can generally expect the lender to review your credit as part of the application process. This makes it a good idea to check your credit, even if you haven’t borrowed money before. Not only will this help you know where you stand before approaching a lender, but you’ll also be able to see if your credit report contains any errors that are negatively affecting your credit.
You can use a site like AnnualCreditReport.com to review your credit report from each of the credit bureaus for free. If you find any errors, dispute them with the appropriate credit bureau either online or in writing.
3. Find a Lender That Works With All Credit Profiles
While most lenders require good credit, others are willing to work with borrowers who have no or bad credit. Be sure to shop around and consider as many lenders as possible. Getting a loan with no credit usually means ending up with a higher interest rate, but considering multiple options can help you find the best deal possible.
There are several different kinds of lenders who offer a no-credit car loan.
Banks or credit unions. If you already have an account in good standing with a bank or credit union, you might be eligible for special financing geared toward borrowers with little or no credit. Some credit unions also offer programs specifically designed for first-time car buyers with thin credit profiles. Not all of these lenders advertise these sorts of programs, so be sure to ask your preferred financial institution what options might be available.
Dealer financing. Car dealerships typically provide their own financing through partner banks or credit unions. Some dealers also offer special options for borrowers with limited credit histories, such as rebates on a car’s purchase price or more flexible loan requirements. You can learn more by visiting the dealer’s website or contacting it directly.
Online lenders. You might also have luck with an online lender. Getting an approval decision from an online lender is usually faster than other options, which can be helpful if you need to move quickly.
4. Consider a Co-signer
If you’re struggling to get approved for a car loan on your own, applying with a co-signer could improve your chances. A co-signer is someone with good credit—such as a parent, another relative or a trusted friend—who is willing to share responsibility for a loan. This can make a lender more willing to work with you as your co-signer will be on the hook for the loan if you fail to make your payments.
This liability makes asking someone to co-sign a car loan a big deal. Also keep in mind that if you miss payments or default on the loan, not only will your credit be damaged but so will your co-signer’s.
5. Make a Larger Down Payment
Lenders are typically hesitant to lend to borrowers with little or no credit as they aren’t sure they’ll get their money back. One way to assuage their concerns is by making a larger down payment, which in turn means you won’t need to borrow as much. This will decrease your overall loan cost and reduce your monthly payments, too.
Additionally, putting more money down on your car will give you more equity in your vehicle, which is the difference between what you owe on the loan and what the vehicle is worth. The lender might also be willing to give you a lower interest rate on a smaller loan, which will save you money on interest and decrease your overall costs even further.
Tips to Build Credit Fast
If you can’t get approved for a car loan due to your lack of credit, it could be a good idea to focus on establishing credit so you’ll have a better chance in the future. There are several strategies that can help you start building credit fast.
Get a Secured Credit Card
A secured credit card is designed to help borrowers establish credit. When you sign up, you’ll make a cash deposit that will act as the credit limit for your card. For example, if you deposit $200, your credit limit will be $200.
By using your secured card and making on-time payments, you can begin adding to your credit mix and establishing a positive payment history. Additionally, many card issuers will allow you to convert a secured card to a traditional card and get your deposit back after you’ve made a certain number of consecutive, on-time payments.
Become an Authorized User
If you know someone with good credit who you trust, ask if you can be added to their credit card account as an authorized user. This will allow you to use the card without being responsible for payments.
Even if you never use the card, the account’s history will appear on your credit report. As long as the primary cardholder makes on-time payments, you could see an improvement in your credit score.
Take Out a Credit-builder Loan
Credit-builder loans are specifically designed for borrowers with poor or no credit. Instead of receiving money like with a traditional loan, you’ll make monthly payments to the lender that will be deposited in a dedicated savings account. Once your term is up, you’ll get this money back minus any interest or fees.
Making on-time payments on a credit-builder loan will help you establish a positive payment history, which should improve your credit score.
Have Additional Payments Tracked
Your payment history makes up 35% of your FICO credit score, which is why paying all of your bills on time is essential to improving your credit. However, if you have no credit history, any bills you’re paying likely aren’t being reported to the credit bureaus.
In this case, you might consider signing up for services that will get you credit for these payments. For example, Experian Boost will add your on-time payments for utilities, streaming and other accounts to your Experian credit report for free. Or you could consider LevelCredit, which will report your cell phone, utility and rent payments for the past two years to all three credit bureaus in return for a $49.95 fee.