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How to get a car with no credit or cosigner

how to get a car with no credit or cosigner

Cars can cost thousands, which is why many people choose to finance the purchase through an auto loan. In 2023, Americans under the age of 40 have grown their vehicle-related debt the most, with the average auto loan up 41% since 2019 at $24,000.1 And about 85% of new passenger vehicles in the U.S were bought on finance in 2020.2

Getting a car loan can be challenging when you have no credit. And on top of that, if you don’t have a cosigner, then it can make things even more difficult. However, there are alternatives to auto loans available when trying to get a car with no credit or cosigner. Continue reading to find out more about each topic.

How Does Credit History Impact a Car Loan?

Below is more information about credit history and its impact on your ability to get a car loan:

What is Credit History?

Credit history is an integral part of the application process with auto loans and any other lending. Your credit history is kept in a credit file with each one of the credit bureaus—Equifax, Experian, and Transunion

Key Factors that Impact Credit:

FactorsDescription
Payment HistoryA record of your on-time and late payments for credit accounts, including loans and credit cards.
Credit UtilizationThe percentage of your available credit that you’re using, which can impact your credit score.
Length of Credit HistoryThe duration of time you’ve had credit accounts, including the age of your oldest and newest accounts.
Types of Credit AccountsThe variety of credit types you have, such as credit cards, loans, mortgages, and retail accounts.
New Credit InquiriesThe number of recent credit inquiries, which can affect your credit score, especially in the short term.

A significant component of a credit report and history is the credit score – a numerical value derived from one’s credit history. It represents the risk associated with lending money to the individual. A higher score indicates responsible financial behavior, while a lower score can suggest potential default risk.

How Does Credit Work When Inquiring to Get a Car Loan?

When you apply for a loan, a lender will access this information to better understand how you have handled your debt, the types of credit you have experience with, and any other data on your credit. 

For those with an established credit history, lenders such as a bank or credit union can easily gauge the associated risks. However, when an individual has little or no credit, it creates uncertainty. The absence of data means lenders can’t make informed decisions about the borrower’s reliability. 

Similarly, bad credit, marked by late payments or defaults, raises red flags, making lenders wary. Both scenarios, bad credit, and no credit, might result in less favorable loan terms, higher interest rates, or even outright denial of the application.

A robust credit history can be a huge advantage when seeking auto loans. Not only does it increase the likelihood of loan approval, but it can also fetch the borrower preferential interest rates, flexible repayment terms, and a smoother approval process.

How Does a Cosigner Help With Car Loans?

A cosigner can be extremely helpful with an auto loan; continue reading to learn more:

What Is a Cosigner?

A cosigner is usually a family member like a parent or spouse with a solid credit history that you can add to your loan application (as long as they agree). When an individual agrees to be a cosigner, they’re not just signing a mere document; they’re essentially pledging to take on the debt if the primary borrower fails to meet the repayment obligations. This is a significant responsibility. If the primary borrower misses a payment, is late, or defaults on the loan, the cosigner is legally bound to cover the debt.

Because of this additional security with a car loan, a lender may be more willing to give out funds. From the perspective of a lender, a cosigner reduces the risk associated with lending money. Especially when the primary borrower has no credit history or a poor one, a cosigner’s good credit can often tilt the balance in favor of car loan approval. Their involvement provides the lender with a secondary source of repayment, thereby making the car loan less risky.

Things to Think About When Thinking To Get a Car Loan With a Cosigner

Before adding a cosigner to your loan, it’s crucial to consider consequences that could happen to the other person if you miss any payments, default on the loan, or defer car loan payments—which will harm credit. Any negative or positive actions you take with your car loan will also impact your cosigner’s credit score. Conversely, timely payments and responsible management of the car loan can enhance both individuals’ credit histories.

The potential financial and relational strain that can arise if you don’t manage the car loan well is significant. Open communication about the loan’s terms, your financial situation, and your repayment plan can help both parties make informed decisions.

Although a cosigner with a good credit score can be helpful, not everyone has access to that option. But the good news is that there are alternatives to using a cosigner that can also increase your chances of approval with auto loans. 

Options if You Want To Use a Car Loan Without Credit and a Cosigner

Okay, now that you know a little more about credit and what it means to have a cosigner with a car loan contract, you may wonder what your options are if you have neither. Here are some options if you still want to pursue an auto loan for your car purchase. 

Getting a Co-borrower for a Joint Loan

If you have someone in your life who doesn’t want to be a cosigner, consider asking them if they would like to be a co-borrower instead. A co-borrower in a joint auto loan equally owns the vehicle and is also responsible for making monthly payments. If they have a good credit history, it can increase your chances of approval, even with bad or no credit. 

Have a Larger Down Payment When Shopping With No Credit and No Cosigner

Having no credit in the eyes of lenders can be the same thing as a bad credit score or poor credit history. And so, when working without credit or a cosigner, having a large down payment may increase your chances of getting approved for an auto loan on a new or used car. A down payment is a percentage that you put down before borrowing. The more you can put down, the less the lender has to give out. And so, put down as much as you can! It can help you get a car loan without credit and may help secure a better interest rate. 

You can pursue a loan option for a down payment if you do not have the money upfront. With no credit, you may be eligible for small personal loan options. You may also come across bad credit loans such as payday loans or title loans. But, it is best to avoid these high-interest loan options. 

Look Around at Different Lenders When Shopping for a Car With No Credit

You can find car loans at banks, credit unions, online lenders, and car dealerships. Dealer financing can vary the most. Dealerships can have promotional periods, special financing offers, and sometimes be more flexible with borrowers with no credit or poor credit scores. Some online lenders may also provide flexibility. On the other hand, a bank or a local credit union may have stricter credit requirements, which can make it challenging to finance a car with no credit. 

So, be strategic with whom you inquire; start with dealerships and online lenders for the best chances of approval on a car loan without credit and no cosigner. Be sure to pay close attention to the interest rate with these options. Keep in mind the lower your credit score, the higher the loan’s interest rate. Also be aware that you can use options like personal to finance a car. Learn more about auto loans vs. personal loans.

Build Strong Credit History

Another thing you can do when trying to get a car loan without credit or a cosigner is take your time to build your credit. If you have no credit, getting a standard loan or credit card can be difficult, but there are other options. You can apply for a credit builder loan or secured credit card. 

You can also get your rent reported to help your credit score or become an authorized user on someone else’s credit card to start building credit. Once you have some credit, you can apply for smaller loans like a personal loan and work your way up to larger options like a car loan. 

Alternatives to Car Financing for Consideration 

Getting a car loan with limited credit history, bad credit, and no cosigner can be challenging, so you may want to consider other options to buy a car. Here are some alternatives to no credit auto loans (which also can work for borrowers who have bad credit) you can look into:

Buy a Used Vehicle or a Cheaper Vehicle Than What You Initially Wanted

One thing you can do for a car purchase is buy a car outright. Some cars are more expensive than others, and buying a new vehicle over a used one can also increase the purchase price. And so, by being smart about what vehicle you are buying—even if it is a downgrade from the car you initially wanted—can mean getting a car without taking out a loan. 

Save Some Money To Buy the Car Outright

Even a used car can cost thousands of dollars; if you don’t have the money upfront, you should consider saving some money over time. Even saving a few hundred dollars a month can really add up to help you cover the total cost of a car. 

Get a Side Gig To Pay For Your Car

Another thing you can do if you need money for a car quickly is to get a part-time job. There are all kinds of things you can do depending on the skills you have. You can look into freelance or contract work for all sorts of jobs, which can come with flexible hours. For an even easier startup, look at the service industry; you can walk dogs, house or pet sit, rideshare driving, or do personal shopping. Even a little bit of extra money each week can be extremely helpful in your goal of buying your car. 

Lease a Car Rather Than Get a Car Loan 

Leasing can be more flexible with bad or no credit. It has emerged as a popular choice for many who prefer to switch up their vehicles every few years. Instead of buying, you lease a car for a set period, often 2-3 years. This approach allows individuals to enjoy lower monthly payments, the luxury of driving a newer model frequently, and the added benefit of a warranty covering most major repairs. The downside? You won’t own the car at the end of the lease and might face penalties if you exceed set mileage limits or decide to terminate the lease prematurely.

FAQS About No Credit Auto Loans 

How long does it typically take to build a credit history sufficient for a car loan?

With consistent, responsible credit behavior, it might take about 6 months to a year to establish a credit history that lenders might consider for a car loan.

Are there any specific secured credit cards or credit builder loans recommended for building credit quickly?

Many banks and credit unions offer secured credit cards and credit builder loans. It’s best to choose ones with low fees, report to all major credit bureaus, and have positive customer reviews.

How can I check my credit score and know when I’m ready to apply for an auto loan?

You can check your credit report for free once a year from each of the three major credit bureaus via AnnualCreditReport.com. Some financial platforms also provide free credit scores. A higher score (typically 600 and above) increases your chance of loan approval.

If I cannot get a car loan due to no credit, will it negatively impact my credit score further?

Yes, each hard inquiry (like a loan application) can slightly reduce your credit score. Multiple rejections in a short span can have a more noticeable impact.

Are there any organizations or programs that assist individuals with no credit in getting an auto loan?

Some nonprofits and community organizations offer programs to assist individuals in obtaining affordable auto loans. Research local resources or ask at local credit unions.

Is there a benefit in waiting to purchase a car until I’ve built some credit history instead of buying it outright?

Waiting allows you to potentially qualify for better loan terms and interest rates. However, if you have the means to buy outright and avoid debt, that’s also a solid option.

How can I ensure that my car purchase doesn’t lead to financial strain due to a lack of financing options?

Consider buying a less expensive car, save for a larger down payment, and ensure your monthly payments (if financed) are no more than 15% of your monthly income.

Are there any red flags to look for when seeking out alternative lending options or dealer financing?

When inquiring with a low credit score or a less-than-favorable credit report, Beware of extremely high-interest rates, hidden fees, and penalties. Always read the fine print and consider seeking advice from financial counselors.

How do payday loans differ from standard auto loans, and why are they not recommended?

Payday loans are short-term, high-interest loans. They can lead to a cycle of debt and are not ideal for significant purchases like cars due to their exorbitant interest rates and fees.

Key Takeaways With No Credit Auto Loans and No Cosigner Car Loans

Most people look to auto financing options when purchasing a car. However, it can be challenging to get a loan without a credit history and a cosigner. The good news is that there are options out there that may be able to help you secure a car loan even with those setbacks. And there are ways to buy a car outright. 

CreditNinja’s Final Thoughts 

Navigating the world of auto financing can be daunting, especially when traditional indicators like credit history or a cosigner aren’t in your favor. But remember, your journey to getting behind the wheel doesn’t end with a rejection due to no credit. 

With the right information, careful planning, and exploration of various options, you can find a route that aligns with your personal finance and financial situation and gets you on the road. 

At CreditNinja, we believe in empowering our readers with knowledge helping them make informed decisions. Whether you opt for an alternative lending solution or decide to build your credit first, always choose a path that safeguards your financial well-being. Drive safely, and choose wisely.

And if you need more resources on how to buy a car with no credit, check out the rest of our blogs!

References:

  1. Charted: The auto loan crisis of America | World Economic Forum
  2. The Most Surprising Car Loan Statistics in 2023 | Gitnux

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