How can I buy a car with no credit

By Izzy M Reviewed by Sarah R Edited by Nooreen B
Modified on February 13, 2024
how can i buy a car with no credit

An established credit history allows consumers to obtain better financial opportunities to achieve important life milestones. You may have difficulty qualifying for loan options if you do not yet have a credit score. So how do you purchase a new or used car without credit? Learn how you can get a car with no credit today!

Why Is Credit History Important?

Credit history is important because financial institutions use that data to make qualifying decisions. The major credit bureaus each maintain a credit file to build credit reports. Credit reports show lenders a consumer’s financial activity in great detail. 

When a person applies for a car loan, lenders will conduct a credit check to view credit scores, credit accounts, and payment history. If you do not have an established credit history, the lender does not know if you’re a responsible borrower. Many lenders will refuse to work with consumers they consider financial risks. 

Having a good credit history can work in your favor! Financial institutions tend to provide better loan terms to individuals who spend thoughtfully, pay on time, and manage their debt. If consumers unexpectedly become unemployed and can’t pay bills, they can get emergency funding right away with high credit scores. A good credit score can help borrowers obtain lower interest rates to save money. 

Having little or no credit can cost a lot in interest fees! You will also spend more time trying to qualify for loan offers, as you may not pass a credit check with no payment history. Steady credit history can make your life easier and increase your financial opportunities!  

How To Improve Odds of Qualifying for a Car Loan?

You can take steps to increase your loan approval odds if you do not yet have a credit history. You can try applying with a cosigner, signing up as an authorized user, or showing proof of your income. 

Use a Cosigner

A cosigner can be added to a loan and takes on responsibility if the primary borrower cannot pay. Lenders may view you favorably if you apply with a cosigner despite having no credit history. Using a cosigner can help you get money quickly if you want to buy a car. However, being a cosigner is risky. If you fall behind on monthly payments, your cosigner is responsible for the debt. Ensure you can meet the loan obligations to avoid damaging a relationship.

Make a Large Down Payment

Buying a used or new car requires a down payment. Typically, lenders expect at least 20% of the vehicle’s purchase price for new cars and 10% for used cars. For example, if you want to buy a new Toyota Prius valued at $25,075, offering a $5,000 down payment can help you build equity quickly. However, a larger down payment can help you get car loan approval with no credit history and save money on interest fees. Offering more money to a car dealership can make you appear financially stable, increasing your chances of loan approval. 

Provide Proof of Steady Income 

When you apply for a car loan, lenders will consider your income and credit history. Your credit history matters because it displays your monthly payments and credit accounts. If you don’t have a credit report to show, you could still get loan approval by showing proof of a steady income. Lenders need to know that a borrower will make on-time payments, and a stable employment history proves you can successfully repay an auto loan! 

Apply for a Car Loan Online 

When you buy a car, the seller will offer auto financing options. Dealer financing is convenient since the dealership submits multiple applications to different lenders on your behalf. However, it may be best to get an auto loan through online lenders before visiting a dealership. Applying for an auto loan before visiting a dealership allows you time to compare loan offers and interest rates. Lots of web-based lenders offer online quick cash loans

How To Build Credit for Credit Reports

Established credit history can open up more opportunities for you, but many people do not have a financial paper trail. According to the Consumer Financial Protection Bureau (CFPB), approximately 26 million Americans are “credit invisible.” Credit invisibility means there is insufficient financial data to create a credit history or credit score. Lack of a credit report can make it harder for someone to qualify for loans and other economic opportunities. 

Establishing a credit history with the three major credit bureaus can make it easier for you to get a loan or rent an apartment. The good news is that there are various ways to build credit history. 

Become an Authorized User

You do not have to apply for a credit account to build credit! You can work on getting a credit report by becoming an authorized user on someone’s credit card account. Authorized users receive a credit card but no credit card bill. All credit card transactions are the sole responsibility of the primary account holder. Being an authorized user means consumers can build credit scores without doing anything! However, ensure you promptly repay the credit card owner to avoid issues. 

Manage a Loan or Credit Line

If you want to buy a car, know that you can improve your credit situation by applying for an auto loan and making on-time payments! Successfully managing a loan can help you establish a credit report and high credit score. 

To avoid financial issues down the line, it’s important to only apply for the amount of money you need. If you need a car loan to buy a $9,000 used car, you should not take out a $15,000 loan—even if you qualify. Settling for a smaller loan amount can help you save money on interest fees and avoid excess debt. 

Report Rent Payments

Your monthly payments can help you build credit if you rent an apartment. Some landlords report tenant payments to the credit bureaus, but you can sign up for a rent-reporting service if yours doesn’t. A rent-reporting service can help you get credit for your reliable monthly payments. The downside is that you have to pay for rent-reporting services. The cost varies, but you can expect to pay a one-time fee or sign up for a monthly subscription. 

How Long Does It Take To Get Credit After I Get an Auto Loan?

Once you obtain an auto loan, you may be excited to get a credit report. However, it takes time for consumers to get credit scores. Getting a credit score based on your financial activity can take as long as six months! 

Be patient and keep paying your car loan on time. A single missed payment can severely decrease your credit score and remain on your credit report for up to seven years. Once you have paid off your loan for a few months, you can get your free credit score online. Equifax, Experian, and TransUnion each offer one free credit report every twelve months. Monitoring your credit score can help you stay on track and better understand your financial position. 

Buying a Car with a Poor or No Credit History
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