When you have no credit history, getting a car loan can be challenging. Car dealers and banks want to see proof of your ability to responsibly handle money before they’ll approve a loan. That doesn’t mean you can’t get financing to buy a car if you have no credit. You just need to find alternate ways to demonstrate your ability to pay back the loan and your willingness to do so responsibly.

Once you provide these assurances, you’ll be well on your way toward securing a loan from an alternative lender or another financial institution. Here is more information about how you can get financed when you have no credit.


What is a car loan with no credit?

A car loan with no credit is a financing agreement that allows you to buy a car even if you don’t have a positive credit report history. This type of loan is also referred to as a subprime loan, or a “no credit check” loan. So, if you have poor credit, or little or no credit at all, you can still get a car loan, provided you meet all the other criteria for the loan, like income, years in the workforce, etc.


How to apply for a car loan with no credit?

car loan with no credit

Before we talk about how to apply for a car loan, we must address the elephant in the room – the fact that you don’t have a credit score. Because car dealerships generally finance the purchase of the vehicles they sell, they require that you have a positive credit history in order to obtain a car loan. This is because the lender can take your payment, and then turn around and recoup their money by making on-time payments if you are late.

The lender will then take your collateral if you miss payments on your installment plan or don’t pay them at all. So, if you don’t have a credit score, it’s almost impossible to get personal loans. What’s more, even if you have a credit score, you probably don’t have enough to get the amount you need for an expensive car.


Check Your Options Before You Apply for a Car Loan

A car with no credit is typically for a shorter term than a typical car loan. These loans also typically have higher interest rates. Since you don’t have a credit reports history, or a high enough credit score to get traditional auto financing, your options are limited. That said, there are lenders out there that cater to subprime borrowers.

Securing an Installment Loan with no Credit

Installment loans, including car loans, are loans for which you make regular monthly payments over a period of time. If you have no good credit history, you might have difficulty finding a traditional lender to approve a car loan, but you can still get financing. Credit unions, which are cooperatively owned financial institutions, often provide loans to people with bad credit or no credit.

Credit unions do not use FICO scores to make lending decisions, which means they are open to anyone who applies. Some credit unions even specialize in providing financing to people with bad credit scores. Credit unions often make car loans in the form of installment loan, which requires you to make payments over time. If you’re a member of a credit union, ask about their specific lending policies. Credit unions operate independently, so their lending policies will vary.


Securing a Car Loan Through a Co-signer

Co-signing auto loans allow you to become an authorized user on a personal loan held by a primary borrower. The primary borrower is responsible for paying the loan and any associated interest, but both parties are equally responsible for the loan’s repayment. If the primary borrower stops making payments, the co-signer is legally obligated to step in and make them.

Co-signing a car loan is risky because you are now equally responsible for the loan. If the primary borrower defaults, you are responsible for repaying the loan. Before you co-sign on a loan, make sure you understand the financial implications of doing so.


Securing an Auto loan with Collateral

If you don’t have a credit history, you may be able to use collateral as security for a bad credit car loan. A car title loan is a type of no-credit-check auto loan where you use your vehicle as collateral. Bad credit car loans work like this: You take out a credit check car loans by putting your car title as collateral.

Co-signing a loan with collateral is risky because if you don’t make the payments, you risk losing your car. Before you take out a car title loan, make sure you understand the terms of the contract and have a plan for making your payments on time.


Try Peer-To-Peer Lending

Peer-to-peer lending is a type of online lending where people with good financial histories loan money to people without those same qualifications. Peer-to-peer car loans are growing in popularity, especially with people who have no credit. You might be able to find someone willing to loan you the money for a car. You’ll sign a contract and agree to repay the loan according to its terms. Just as with any other type of loan, you’ll want to shop around and find the best loan terms.


Renting a Car

If you don’t have any credit history, you can still rent a car. Rental car companies are increasingly using technology to track your driving behavior and make sure you drive carefully. That technology allows them to approve customers without a credit history. Renting a car is similar to taking out a car title loan. You’ll pay a deposit, and in return you’ll get a certain amount of miles. The miles will be less than what you normally get with a car rental, but you will have a payment that you’ll have to make on a regular basis. Before you rent a car, make sure you know what miles you’re allowed to drive.


Things to know before applying for a car loan with no credit

If you are thinking about applying for a loan with no credit, know that these types of loans typically come with higher interest rates and shorter terms than a traditional loan. This is because these lenders want to reduce their risk of losing money if you default on the payment. Also, the process of applying for a loan with no credit is a bit different than applying for a regular loan with a credit score.

When you apply for a loan with no credit, you will usually be required to submit an application with some sort of down payment, and you may be required to provide a cosigner or someone who would be financially responsible for the loan if you don’t make the payments. In some cases, you can also apply for a loan with no credit by searching online for “no credit car dealerships.”


Final words: Is a car loan with no credit the right choice for you?

If you have no credit, it’s unlikely that you also have a high enough income to qualify for a traditional car loan. If you need a car but don’t have the cash to purchase a vehicle, a car loan may be the right choice for you. However, keep in mind that applying for a car loan will most likely result in a higher interest rate on your loan, and you may be required to put down a larger down payment.

Also, keep in mind that if you don’t make payments on your loan for a certain amount of time, your cosigner will be responsible for paying it off. So, make sure you’re prepared to accept the terms of a car loan before you apply for it.