If you are a first-time car buyer with little or no credit history, you may find it difficult to get a car loan. Using a cosigner is one way to improve your chances of approval, but not everyone has that option.
Fortunately, there are ways to get approved for an auto loan with no credit and no cosigner. Here’s what you need to know.
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Challenges of obtaining a loan without credit
It is not impossible to get a car loan without a credit history. However, it’s much harder to get approved and you’ll likely pay a higher interest rate. Depending on how much money you need to borrow, you could also be stuck with an expensive monthly payment.
Lenders look at your credit history to determine how responsible you will be for a borrower. Essentially, lenders are looking for proof that you will pay them back in full. Having good credit shows that you are financially responsible and that you can pay your bills and other loan payments consistently each month.
Having no credit can make it difficult to get a car loan, but so can having bad credit. If your credit score is low, lenders don’t consider you a strong borrower. Having bad credit may not disqualify you from getting an auto loan, but your interest rate will likely be quite high.
How to get a loan without credit and without a cosigner
If you have no credit or poor credit, using a cosigner is one way to get an auto loan. Usually, this person has a strong credit history and good credit score and agrees to assume the loan payments in case of default.
However, not everyone has access to a cosigner with good credit. If you have no credit history and can’t get a loan with a cosigner, here are some options you can consider:
- Search for subprime lenders: Borrowers with bad credit or no credit can find success applying for an auto loan through a subprime lender. These lenders specialize in giving loans to people with bad credit. Subprime lenders tend to have less stringent eligibility requirements, but interest rates tend to be extremely high.
- Make a large down payment: Making a significant down payment on your vehicle is another way to increase your chances of getting approved for a no credit, no cosigner loan. If you can afford a large down payment, it shows the lender that you have enough funds. You can also qualify for a lower interest rate if you only need to borrow a small amount of money.
- Consider a Buy Here Pay Here program: Even with no credit history or a low credit score, you may be lucky with a Buy Here Pay Here (BHPH) program. These programs, which are usually offered through dealers, have some requirements. But once you’re enrolled in the program, a cosigner isn’t necessary.
Shop here Pay here loan programs
Some car dealers offer programs for borrowers with poor credit or no credit history. It is often referred to as internal financing, Tote the Note or Buy Here Pay Here (BHPH). Typically, this type of loan is only available to used cars. If you want to buy one brand new caryou may need to rethink your use of internal financing.
To be eligible for a BHPH program, you must demonstrate your employment history. The dealer also looks at your overall income, how long you’ve been working, and whether you rent or own your primary residence. Borrowers with a steady income and a long work history tend to have an easier time getting approved.
If you get approved by a BHPH dealer, be prepared for high interest rates. However, making a large down payment on the vehicle can reduce the amount of money you have to spend overall.
If you are trying to build credit, make sure the dealer offering the BHPH program reports your payments to the credit bureaus. As you pay off your loan on time, you’ll build a credit history and improve your score.
Other loan options
As a car buyer with little or no credit history, there may be other options besides subprime loans and BHPH programs. For example, if you are a student or recent graduate, you may be able to find special student loan programs. Instead of looking at your credit history, the lender looks at your income, GPA, and your down payment.
If you are a member of a local credit union, you can check with them to see if they have special financing for borrowers with no or poor credit. Having an established relationship with the credit union can be helpful. If you have enough funds in your bank account, the credit union may be more willing to approve you.
Finance and insurance editor
Elizabeth Rivelli is a freelance writer with over three years of experience in personal finance and insurance. He has extensive knowledge of various lines of insurance, including auto insurance and property insurance. His name has appeared in dozens of online financial publications, including The Balance, Investopedia, Reviews.com, Forbes and Bankrate.
