With the average price of a new car at $48,000, a lot of consumers have to finance their purchases. You normally need decent credit to acquire a car loan. Finding an affordable financing option when you have weak or no credit may be difficult.

However, buying a car with no credit is possible, and there are many options you can explore. In this guide, we’ll outline your options and the tips you can follow to improve your chances of securing financing for your new vehicle.

Can I Buy a Car With No Credit?

Yes, you can buy a car with no credit, but your options can be limited. Having no credit means that your credit report doesn’t have enough information for the lender to use to evaluate your creditworthiness. You may not have a credit history because you haven’t borrowed money or opened any credit accounts, which is common for immigrants and young adults. Some lenders may be willing to extend credit, even when you don’t have a credit history.

Having no credit is better than having bad credit due to defaults, delinquencies, and late payments. These negative marks make you a riskier borrower, which can limit your options. You’ll still be able to find car loans for bad credit but at a higher cost.

Challenges of Buying a Car With No Credit

Lenders evaluate your credit history to determine your risk as a borrower. They’re looking for evidence that you’re a responsible borrower and will pay them back. A good credit score proves that you pay your bills on time and are financially responsible.

Having no credit makes it difficult to get approved for a car loan because lenders can’t determine your risk. While buying a car with no credit isn’t impossible, you’ll pay a higher interest rate. You may not be able to borrow as much money, and your car loan payments can be higher.

5 Tips To Buy a Car With No Credit

“No credit is better than bad credit, but you need to build credit to get good interest rates,” explains Teresa Dodson, a financial expert and the founder of Greenbacks Consulting. “I would finance the car with a lender willing to work with your no credit history. Then, after a year of on-time payments and establishing good credit, I would try to refinance for a better rate,” suggests Dodson.

If you’re buying a car for the first time with no credit, there are several things you can do to improve your chances of getting approved based on your individual circumstances.

1. Consider Your Budget

Before you take on any new car debt, it’s important to consider your affordability. Make a budget and calculate all your regular expenses, such as groceries, utilities, rent, and more, to see how much you can comfortably spend on your auto loan payments, maintenance, car insurance, and gas. Use an auto loan calculator to estimate payments at different rates to determine if you should buy a new or used car.

2. Save For a Down Payment

Giving a loan to a borrower with no credit is risky for lenders. One way to lower your risk as a borrower and increase your chances of approval is by making a large down payment of at least 20%. This will give you more equity in the car and may also help you get a lower interest rate.

With a larger down payment, you’ll have to borrow less money, which lowers your monthly payments and reduces the risk for the lender.

3. Research Lenders Specialized in No-Credit Financing

When buying a car with no credit, it’s important to work with the right lenders. Most financial institutions prefer borrowers with good credit, but there are others who may have more lenient eligibility requirements, for example, Auto Credit Express.

Consider online lenders, credit unions, and dealership financing, which may be willing to work with you. You’ll usually pay a high interest rate but compare multiple options to get the best possible deal.

4. Consider a Cosigner

A lender will be more willing to offer you a loan if there’s a cosigner with an established credit history. Apply with a cosigner to improve your chances of getting an auto loan. Ask a parent, close friend, or family member with good credit if they’ll be willing to apply.  

Keep in mind that a cosigner will also be responsible for repaying the loan if you miss car payments. If you default on the loan, it can damage the cosigner’s credit, so it’s not a decision to make lightly.

5. Improve Your Credit Score

If you can wait before buying a car with no credit, take the time to establish a strong credit history by becoming an authorized user, making timely bill payments, and using credit responsibly. This will make it easier for you to qualify for a loan and will provide you access to better financing terms.

Here are a few more ways you can improve your credit score.

Get a Secured Credit Card

If you can’t qualify for a regular credit card, you can make a cash deposit to get a secured credit card. When you keep your credit utilization low and make timely payments on the card, you’ll start establishing a good credit history. You can upgrade to a regular credit card and get your deposit back after a few months of on-time payments.

Make Timely Payments

One of the best ways to build your credit is by making timely payments. Your payment history accounts for 35% of your credit score. Set reminders on your phone or set up autopay to ensure you don’t miss any bills.

Take a Credit-Builder Loan

A credit builder loan is designed for borrowers with no or poor credit history. When you apply for the loan, the funds will be deposited in a secured savings account. You’ll make payments towards the loan, and once your term is complete, you’ll receive the loan amount. Making timely payments on this loan will help you establish a positive payment history.

Where To Buy a Car With No Credit

You’ll be able to purchase a car with no credit history with financing from banks, credit unions, online lenders, and dealerships. Alternatively, you can use a credit card to buy a car, but you should carefully consider factors such as the dealership’s policies, your credit limit, and any extra fees you may incur.

Consider Dealership Financing

Car dealerships have multiple lending partners that work with borrowers of all types of credit. If approved for dealer financing, you can purchase the vehicle and make payments to the auto lender each month. However, dealers usually mark up the interest rate, which can be expensive.

Many dealers also offer buy here, pay here loan programs, where the car is financed by the dealership. Dealers offering in-house financing are more likely to work with borrowers with poor or no credit history.

Ask Your Credit Union

If you’re a member of a credit union with an established history, ask if they offer loans for members with no credit. Credit unions are more likely to offer special financing deals for members, though you may pay a higher interest rate compared to other borrowers. Get a pre-approval for the auto loan to check what rates you may qualify for.

Research Online Lenders

Online lenders like UpStart and MyAutoLoan are also more likely to offer auto loans for borrowers with no credit compared to traditional banks. Research online lenders and loan aggregators to see if you qualify for an auto loan. Be sure to read customer reviews and research the lender and their loan terms before you sign the loan agreement.

Build Your Credit To Buy a Car

When it comes to buying a car with no credit, there are many loan options to explore based on your financial situation. Do your research, compare lenders, and compare loan offers from multiple lenders before you make a decision.

We also recommend taking the time to build your credit history before you buy a car to improve your chances of getting approval. Another option is to refinance your car loan once you qualify for a better rate after a few months of consistent repayment to save money.