Buying a Car with No Credit: What to Know and How to Do it

Navigating the world of car financing can be challenging, especially for individuals with limited or no credit history. Whether you're a recent graduate, a newcomer to the U.S., or simply haven't had the need for credit in the past, the prospect of purchasing a car without an established credit history may seem nerve wracking.

The good news is that you can still buy a car without a credit history. You may need to take some extra steps, but a new vehicle could be within reach. From down payments to dealership financing, we’ll walk you through some strategies to make it happen.

Why your credit history matters when buying a car

When purchasing a car, your credit history holds significant sway over the financing options available to you. A strong credit history may open doors to lower interest rates and better loan terms, potentially saving you thousands of dollars over the life of the car loan. Lenders use your credit report to assess your risk as a borrower, with higher scores indicating a lower risk and vice versa.

On the flip side, having little or no credit history can limit your financing options, leading to higher interest rates and larger monthly payments. Be sure to monitor and manage your credit history diligently, as it can significantly impact your ability to purchase the car you need at a price that fits your budget.

How to buy a car with no credit

Although your credit history matters when buying a car, you have options if you don’t have a strong credit history — or don’t have one at all. With the right strategies and mindset, you may still be able to purchase the car you need, even without a credit score.

Let's explore various ways to navigate the car-buying process successfully:

Save for 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.

While saving a lump sum of cash may not be possible for everyone, supplying a larger down payment means you’ll need to borrow less money, making it more likely you’ll get approved for a car loan.

A significant down payment not only reduces the amount you need to finance but also demonstrates your commitment and financial responsibility to lenders. Start setting aside money each month until you reach a sizeable down payment that aligns with your budget and the cost of the car you have in mind.

Use a budget calculator to help create and meet your down payment savings goal.

Use a credit union to buy the car

Credit unions are often more willing to provide car loans to applicants who don’t have strong – or any – credit. Some even offer credit-building loans¹ to help the borrower build a stronger credit profile.

Credit unions are nonprofit financial institutions that often offer more lenient lending criteria compared to traditional banks. They may be more willing to work with individuals who have no credit history and often offer competitive interest rates on auto loans. If you’re not already a member of a credit union, see if you’re eligible to join through your employer or a family member — or search for a location-based credit union in your area.

Finance through the dealership

Dealer financing comes in two forms. The first and more common type is when a car dealership submits your application to a number of 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 car if you don’t have any other options.

Keep in mind that if your credit history isn’t strong, or you don’t have one, dealer financing may require proof that your income is sufficient to pay back an auto loan.

Ask about special financing for students

Some lenders and automakers make special accommodations for students and recent graduates who have little or no credit.² While you’re car shopping, ask dealerships if student financing is something they offer.

If you’re a recent college graduate or current student and have a steady income, dealerships may feel confident that you have the means to pay back a loan. While other factors may come into play, such as a down payment and even your grade point average, this type of financing is a limited-time perk, so take advantage of it if you can.

Use a cosigner to buy the car

Another way to buy a car without a strong credit history is to have someone cosign with you. If you're unable to secure financing on your own, consider asking a trusted friend or family member to be your cosigner. A cosigner provides the lender with a safety net that your auto loan will be repaid, even if you fail to make payments.

Remember, cosigning makes your cosigner legally responsible for your loan. Late or missed payments will reflect negatively on their credit score as well as yours.

If you’re thinking of going this route, here’s some information to have on hand about what to expect when cosigning on a loan. It’s important to note that some lenders don’t allow cosigners. They may, however, accept collateral – such as another vehicle, motorcycle, or RV – to secure the loan.

Have hope and keep an open mind!

Above all, maintain a positive attitude throughout the car-buying process. While it may be challenging to navigate the world of auto financing without credit, many individuals have successfully overcome similar obstacles. Stay patient, persistent and open-minded as you explore different options and work towards your goal of owning a car.

Waiting until you save for a down payment or applying with a cosigner may be new ideas to consider, but these options can give you a twofold advantage — a new car and the opportunity to build credit for future purchases.

Get your new car with the money you need ready to go. Learn how a car purchase loan from OneMain can help.

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Source:

1. What is a Credit-Builder Loan and Who Would Benefit?
https://www.nerdwallet.com/article/loans/personal-loans/what-is-credit-builder-loan (accessed May 6, 2024)

2. Car Loans for Students: Can You Get One?
   https://www.creditkarma.com/auto/i/car-loans-for-students (accessed May 6, 2024)

This article has been updated from its original publication in 2020, 2021 and 2022. By Jessica Leshnoff, Contributed by Kim Gallagher.