What can you do if you need a vehicle but can’t afford to buy one outright and you don’t have any credit? Is it possible to get an auto loan with zero credit history? And even if you can qualify, are the rates affordable? If you’re in the market for an auto loan and you have these questions, we have you covered.
In this guide, we’ll cover everything you need to know about no-credit auto loans.
Can you get a car loan with no credit?
First, is it possible to get a car loan with no credit? When you apply for a car loan, the lender will check your credit history. If you don’t have a credit history, some lenders may deny your application right away. However, some lenders will consider additional factors, such as your income, and give you a chance. To find out what loan options are available to you, follow these steps.
1. Find out if you qualify with vetted lenders
A great place to start is with SuperMoney’s loan engine. Just answer a few quick questions to find out in minutes if you qualify with multiple vetted auto loan lenders.
The process won’t affect your credit score and allows you to view offers from lenders side-by-side. Compare loan amounts, interest rates, loan terms, and customer reviews. If you don’t qualify for an online loan or aren’t happy with the terms available to you, you still have a few options.
2. Apply with your banking institution
Next, inquire at your bank or credit union. The longer you’ve held your account, the more likely it is to lend to you, especially if you’ve kept your financial history in good standing.
Credit unions are often more willing to lend to members because of their non-profit, member-run structure. Plus, they typically offer lower interest rates than those that banks offer.
3. Apply with an auto dealer
If you don’t have a healthy enough history with your bank or credit union, try asking your auto dealer of choice if they offer financing. Auto dealers have financing networks that they tap into to find loans for buyers.
However, dealers often process a hard inquiry on your credit report in order to get your offers — and this will affect your credit score. Further, you may be able to get a better deal elsewhere. It’s best to shop around so you know all of your options before applying with the dealer.
4. Consider a cosigner
If you still haven’t found the right offer from the loan engine, your financial institution, or a dealer, you can apply with a cosigner. A cosigner is a person who agrees to be liable for the debt if you fail to pay as agreed.
The loan will impact both of your credit reports/scores, whether positively or negatively. Cosigning a loan is a large responsibility for someone to take on for you. However, if you find someone willing to do so, their credit can help you to get approved. Just be sure to make your payments on time. If you fail to do so, they will be forced to cover the debt, which can seriously strain a relationship.
Going with a cosigner will help you qualify for lower rates. The graph below shows the average rates for the last two 24 years.
There are multiple ways to get car loans if you don’t have any credit. It will not be as easy or affordable as it would be if you had credit, but it is possible. However, expect rates to be high. The average rate for a 48-month loan is around 5.30% APR. But you will have to pay much more than that if you have bad or no credit. The table below gives you a general idea of what rates you should expect.
Preparing to get a car loan
If you are considering applying for a car loan with no credit, be sure to prepare first. Here’s how to get started.
Check your credit
Before applying, check your credit report. You can get one free copy of your credit report each year from each of the three credit bureaus (Experian, Transunion, and Equifax).
Even if you don’t have any credit history, it is good to double check. One in five Americans finds errors on their report every year. Before you ask lenders to check your reports, ensure that everything is correct.
Calculate how much you can afford
Next, calculate how much you can afford. Look at your income and expenses to figure out how much money is available per month. The amount you spend on your car per month should not exceed 15% of your net monthly income. 10% is even better. For example, if you take home $2,500, your car costs should not exceed $375, including insurance. Ideally, you should be spending around $250.
In addition to the monthly payment, you should also look at the total cost of the loan. A lender may offer longer loan terms to lower your monthly payment amount, but that will also raise your total cost. To pay the least in interest overall, you should choose the shortest loan term whose monthly payments you can still comfortably afford.
Learn more about calculating car payments.
Prepare evidence to support your case
Once you have figured out how much you can afford, prepare evidence to prove that figure. Collect pay stubs to show how much you make per month. Gather recent receipts from your monthly bills to show your expenses. Further, make a list of references who will attest to your trustworthiness.
Save up for a down payment
A down payment can make the difference between approval and denial, especially when you have no credit. It shows that you have the self-discipline to save, and helps to lower the risk for the lender. Plus, it can result in a lower interest rate on the loan.
If you can, save up a lump sum to put down on the loan (ideally 20%). If you can’t, you can still try to apply with no down payment, or can trade-in an old vehicle.
Shop around before visiting a dealer
Never go to a dealer without shopping around for financing first. Dealers will usually try to close the deal on the spot by figuring out some way to finance you. However, their offer is not always in your best interest. By getting your own quotes first, you will have the advantage in your negotiation. You can compare the dealer offer to others and choose the best one.
Frequently asked questions about no credit auto loans
How do you get a car with no credit and no cosigner and no down payment?
You may be able to get a car loan without credit, a cosigner, or a down payment by shopping around with multiple lenders. Online lenders, banks, credit unions, personal connections, and dealers may all be willing to extend a loan to you.
Can I get a car loan with a credit score of 560?
Can I get a car loan with a credit score of 500?
Yes, select lenders will help people with credit scores of 500. For example, Auto Credit Express, for example, considers borrowers with credit scores of 500 and even lower.
Should you get a car loan if you have no credit?
Now that you know the basics of applying for car loans with no credit, should you get one? Here’s a look at the pros and cons:
Here is a list of the benefits and the drawbacks to consider.
- Get a car without paying out-of-pocket.
- Start building your credit.
- Many parties extend auto loans, even with no credit.
- Pay high costs due to your lack of credit.
- Limited options may require more work when shopping around.
In short, it depends on your personal situation. The first step is to figure out how much you can afford. Then, see if you can find a vehicle and loan combination that fits into your budget. If you have more than one offer, compare them side-by-side to find the best value.
In most cases, the annual percentage rate (APR) and fees will be on the expensive side, but that is the price you pay to build your credit. The cost may require you to hold off on your dream vehicle and opt for something more modest to stay on budget. But once you have established positive lines of credit, your costs will go down and options will expand.
Ready to get started? Find your best rates in minutes here.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.