If you want to take out an auto loan to buy a car, you’ll have a much easier time if you have a good credit score and a well-established credit history. If you haven’t had enough time to build up your credit yet (e.g., if you’re only 18 or 19 years old and you’re trying to buy your first car), it may feel like you can’t get a car loan anywhere.
Don’t worry—even if you’re just beginning your credit journey, it’s possible to get your own car in no time. You just have to know where to look.
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Why do you need credit to get a car loan?
Just like any other type of loan, auto loans involve risk for the lender. To minimize this, they’ll assess each potential borrower’s creditworthiness to determine how likely they are to repay the loan on time before actually handing over the money.
If you have little or no credit history, it’s a lot harder for banks and other financial institutions to feel confident that you won’t just use their money to buy a car and then drive off into the sunset, never to be heard from again.
However, some lenders may be willing to use other methods of weighing your risk as a borrower. This is good news for you if you have no credit score or an insufficient credit history because it means that there are other ways that you may be able to qualify for an auto loan.
How to get an auto loan with no credit
Convincing auto lenders to give you the money you need to buy your dream car may be difficult if you have no credit, but there are a few things you can do to make the whole process go a lot more smoothly and increase your odds of loan approval.
1. Explore no-credit car loans
As you may have already guessed, you’re not the first person to look for car financing with no credit check—and lenders are well aware of the market demand for loans like this.
Several lenders offer auto financing with minimal or no credit requirements. Below is just one example:
Consider getting prequalified for an auto loan before submitting a formal application. This may help minimize the damage to your credit from hard inquiries, which appear on your credit report when you apply for new credit.
2. Check loan options at your credit union
If you’re a member of a credit union, check to see whether they offer car loans. Credit unions often have more lenient credit requirements than other types of financial institutions, so you may have better luck trying to get an auto loan from them.
Some credit unions even offer loans called “credit-builder auto loans” or “credit-builder car loans,” which are specifically designed for borrowers who are just starting out in the world of credit. These loans may come with perks that ordinary loans don’t have (such as an interest rate that steadily declines over time, as long as you keep up with your payments).
3. Explore first-time car buyer programs
If you’re looking to buy your first car and you’re struggling to find a lender that’s willing to give you a car loan, then a first-time car buyer program could be just what you need.
These programs are specifically designed for people who want to take out their first auto loan but can’t qualify for traditional car loans because of their lack of a credit history. If you’re a student, then you can also look into first-time car loans for students with no credit.
Although you can get this type of auto financing with no credit, bear in mind that you’ll still need to show that you have a steady source of income so that you can make all your loan payments. Be prepared to provide pay stubs or other proof of income.
4. Consider dealership financing
Even if you can’t get an auto loan from a traditional lender due to your lack of a credit history, in-house dealership financing is typically easier to qualify for. It also offers the convenience of cutting out the middleman and getting your car and loan in the same place.
However, “buy here, pay here” (BHPH) auto financing has several drawbacks you should consider before signing up: 1
- Higher costs (e.g., high interest rates and hidden fees)
- Fewer car options
- Larger down payment required
- Higher risk of repossession (due to the higher costs and because many dealerships are less willing to forgive the occasional late payment)
Before signing any contract, read it carefully. Ensure that you fully understand the terms of the agreement and that your budget can accommodate it.
5. Find a cosigner
Getting someone with a good credit score and a strong payment history to cosign your car loan application is the easiest way to alleviate any doubts your lender might have about whether they’ll get their money back. This is because if you stop making your car loan payments, they’ll be able to hold your cosigner responsible for paying off your remaining debt.
This option works, but it’s a bit risky—if you fall behind on your payments, it will strain your relationship with your cosigner. If you decide to get a car with a cosigner, choose someone who’s close to you (such as a parent or older sibling).
6. Try rapid credit building
If all else fails and you don’t like the car loan options you have with your current credit profile, you can try using credit hacks to establish credit quickly:
- Self-report your rent payments: Although paying rent doesn’t normally build credit, it will if you sign up for a rent-reporting service. Some companies, like Rental Kharma, can add past rent payments to your credit report, allowing you to immediately establish months or years of credit history.
- Become an authorized user: If someone adds you as an authorized user on their credit card, their payment history may be added to your credit report. If the primary cardholder doesn’t have any late payments, then becoming an authorized user will improve your credit score and give you a positive credit history.
- Sign up for Experian Boost: If you pay your own monthly bills (e.g., utility, phone, or streaming service bills), then you can lengthen your credit history by adding those bill payments to your credit report for free using Experian Boost.
These approaches may be enough to change your loan prospects and allow you to get the car you want right now.
However, if you’re not in a rush, you can also take long-term steps to build credit before buying a car. You’ll have more loan options and will qualify for better terms if you have a long credit history.
To establish credit over time, consider applying for a credit-builder loan, and open a credit card and use it regularly and responsibly. We’ve listed several credit cards below that are available to people who are just starting out and have no real credit history yet.
Alternative options: how to get a car without taking out an auto loan
Financing a car is a common practice, but that doesn’t mean it’s your only option for getting a car. There are a couple of alternatives you can consider if you want to avoid the car loan application process entirely.
Lease a car
Leasing a car is a simple alternative to buying. Instead of taking out a car loan and making monthly loan payments, you’re borrowing the car for a prolonged period (typically a few months or years).
Although you don’t have the benefit of owning the car, the monthly payments are typically lower for leasing than buying. 2 Leasing also allows you to try out different models without committing to a purchase, and some lease agreements give you the option to purchase the vehicle at a later date.
Leasing may also allow you to drive newer and more expensive cars than ones you’d be able to afford if you were buying a car.
However, bear in mind that you may need to pay for damages to the vehicle since you won’t have any ownership rights over the car. Make sure to read the details of your lease agreement carefully so that you know what you’re signing up for.
Save up to buy a car in cash
As mentioned, one obvious way to get a car when you can’t qualify for an auto loan is to just pay for it in full using money you already have. This might not be the most appealing option if you need a car right now and just don’t have the money needed to buy a car outright, but if you can afford it, it’s a great option.
It’s possible that the cars you’ll be able to afford to buy with cash will be used cars that are in questionable condition. If this is the case, then make sure to get the car inspected by a mechanic before you hand over the money. This way, you’ll have some reassurance that the car won’t cost you more in repairs than it’s actually worth.
