Buying a Vehicle with No Credit

Buying a new or used vehicle with no credit can be a challenge, but some auto lenders specialize in working with people who don’t have an established credit history. There are things you can do, like making a down payment or getting a co-signer, that could help improve your chances of being approved for an auto loan.

While it’s possible to buy a vehicle with no credit your financing options may be limited, and you may face challenges that consumers with a solid credit history may not experience.

Lenders generally prefer applicants who have an established pattern of responsible borrowing and making on-time payments. However, there are lenders that may be willing to work with you if you have little or no credit.

Why your credit history matters when buying a vehicle

Most of us need a vehicle loan to purchase a vehicle. When you submit a loan application, lenders want to be reasonably sure you can repay it on time before determining whether to approve you for a loan. Your credit history is one of the many factors they review to determine your credit risk.

If you’ve never used credit before or haven’t used enough to establish a history of consistent, on-time payments, you may be considered a higher risk to lenders, and you’ll likely pay a higher interest rate which will mean higher monthly payments and more interest paid overall.

Since lenders typically run a credit check as part of their application process, it’s a good idea to review your credit reports on TransUnion, Equifax, and Experian, before you start shopping around for a new vehicle or financing options. You should do this even if you think there’s nothing on them. It will give you an opportunity to ensure the information is accurate and dispute anything that’s incorrect before you apply for a loan. It is common to have different credit scores across all three bureaus so to get the best loan terms you should bring all three credit scores to your loan appointment.

Where can I shop for a vehicle loan with no credit?

Shopping for a car loan with no credit may be challenging, but it’s not impossible. Here are options to consider.

Lenders that work with all credit profiles:

• There are lenders that specialize in lending to people who have no credit or bad credit. But while you won’t need an established credit history to apply, you may need to prove that you have a steady source of income to show that you can make your payments on time. Depending on the lender, you may be limited to buying a car from a dealership within the lender’s network.

Special financing offers:

• If you’re a student or recent graduate, you may be able to qualify for special financing, such as Dick Says Yes in Gladstone and Vancouver. Some lenders and automakers have programs specifically designed for students and graduates with little or no credit history. Some of these programs use other factors, like income, down payment amount, and GPA, to make lending decisions. While you are vehicle shopping, ask dealerships if this is something they offer.

Credit unions:

• Credit unions have a reputation for being more willing to work with applicants who have experienced financial difficulties in the past or don’t yet have a credit profile. Some even offer credit-builder auto loans designed to help you purchase a vehicle and build credit at the same time.

Finance through the dealership:

• Dealer financing comes in two forms. The first, and more common, form is that a car dealership submits your application to several different lenders, negotiates financing on your behalf, then offers you a loan through a third-party lender.
• An alternate method can be found at “buy here, pay here” dealerships, which offer in-house financing, often at much higher interest rates than traditional auto loans. While this type of financing won’t build your credit, it may offer a way to get a vehicle if you don’t have any other options.

Ways to help increase approval odds on your vehicle loan

There are some things you can do that might help improve your chances of being approved for auto financing even if you have no credit.

Make a down payment:

• When it comes to buying a car, the more you can pay up front, the better. This is especially true if you don’t have a credit history. In some cases, the lender may require a down payment for a vehicle loan. When you make a down payment, you end up borrowing less, which may decrease the cost of the loan since you’ll pay interest on a smaller loan amount.

Secure a consistent paycheck:

• While a lender may be willing to work with you if you don’t have an established credit history, it’s unlikely it’ll give you a loan if you can’t repay it. Make sure you have a reliable source of income before applying.

Get a co-signer:

• One of the easiest ways to get a car without credit is to have someone cosign for you. Depending on their credit situation, it may improve your chances of being approved and help you qualify for a lower interest rate. This provides lenders with a safety net that your auto loan will be repaid. Remember, a co-signer is legally responsible for your loan and agrees to repay the loan if you’re unable to. Late or missed payments will reflect negatively on their credit score as well as your own.

Shop around:

• Eligibility requirements vary from lender to lender. Shopping around allows you to compare loan offers and help you find the best interest rates and loan terms available to you.

Build your credit:

• If you can put off buying a vehicle, taking the time to establish a solid credit history may be a good option. Financial institutions offer products like credit-builder loans and secured credit cards that are designed to help people build credit.

Now what?

Take a thorough look at your situation and decide whether it is necessary to get a vehicle now or if you can wait until you’ve had a chance to build your credit history. If you don’t need a vehicle now, waiting to buy can be a great way to spend less in interest.

If it can’t wait, review your budget to determine how much vehicle you can afford, and stick to that number. Remember to shop around for loans.

Buying a vehicle can be an exciting venture. The good news is that you still can buy a vehicle without credit. It may take some extra steps, but a new vehicle is within reach.

We have a lot of additional education resources for your to check out before you buy a car. Including this great video detailing some additional information on why your credit score is important. If you have no credit or blemished credit our team at Dick Says Yes are professionals when it comes to getting you into a car you can afford and help you with a plan to help re-build your credit through your loan.