If you’re a first-time car buyer with little or no credit history, you may find that it’s difficult to get a car loan. Using a co-signer is one way to improve your chances of approval, but not everyone has this option.
Fortunately, there are ways to get approved for an auto loan with no credit and no co-signer. Here’s what you need to know.
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Challenges of Getting a Loan with No Credit
It’s not impossible to get a car loan without a credit history. However, it’s much harder to get approved and you will probably pay a higher interest rate. Depending on the amount of money you need to borrow, you might also get stuck with an expensive monthly payment.
Lenders look at your credit history to determine how responsible of a borrower you will be. Essentially, lenders are looking for evidence that you will pay them back in full. Having good credit proves that you are financially responsible and can pay your bills and other loan payments consistently every 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 to be a strong borrower. Having bad credit may not disqualify you from getting an auto loan, but your interest rate will probably be pretty high.
How to Get a Loan with No Credit and No Cosigner
If you have no credit or poor credit, using a co-signer is one way to get an auto loan. Usually, this individual has a strong credit history and a good credit score and agrees to take over the loan payments if you default.
However, not everyone has access to a co-signer with good credit. If you have no credit history and you can’t get a loan with a co-signer, here are some options you might consider:
- Look for subprime lenders: Borrowers with bad credit or no credit might have success applying for an auto loan through a subprime lender. These lenders specialize in giving loans to people with bad credit. Subprime lenders usually have less strict eligibility requirements, but the interest rates are typically extremely high.
- Making a substantial down payment: Making a big down payment on your vehicle is another way to increase your chances of loan approval with no credit and no cosigner. If you can afford a large down payment, it shows the lender that you have sufficient funds. You might 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 might find luck with a Buy Here Pay Here (BHPH) program. These programs, which are usually offered through dealerships, have some requirements. But once you’re enrolled in the program, a cosigner isn’t necessary.
Buy Here Pay Here Loan Programs
Some car dealerships provide programs for borrowers with poor credit or no credit history. It’s often known as In-House Financing, Tote the Note, or Buy Here Pay Here (BHPH). Usually, this type of loan is only available for used cars. If you are wanting to buy a brand-new car, you may have to rethink using in-house financing.
To become eligible for a BHPH program, you must prove your employment history. The dealer also looks at your overall income, how long you’ve been employed, and whether you rent or own your primary residence. Borrowers with a consistent income and long employment history usually have an easier time getting approved.
If you get approved through 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’re trying to build credit, be sure that the dealer offering the BHPH program reports your payments to the credit bureaus. As you make on-time loan payments, you will develop 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’re a student or recent graduate, you might be able to find special loan programs for students. Instead of looking at your credit history, the lender considers your income, GPA, and your down payment.
If you’re a member of a local credit union, you can check with them to see if they have special financing for borrowers with no credit or poor credit. Having an established relationship with the credit union can come in handy. If you have sufficient funds in your bank account, the credit union might be more willing to approve you.
Finance & Insurance Editor
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.