Perhaps you just got to the United States and aren’t familiar with the credit system yet. So you have no credit history, but you still need a car to make it to work. 

Maybe you’re a young car buyer who recently graduated and needs a car, but you haven’t built any credit history. When you’ve asked someone to cosign for you, they can’t or won’t. 

It can feel frustrating to try buying a car with no credit history or cosigner. It also leaves you with fewer options for getting a car loan. The options you’re left with come with a higher interest rate which means a higher monthly payment.

Even with insufficient credit history and no cosigner, there are still ways you can get a car loan.

Can You Get A Car Loan With No Credit Or Cosigner?

Can it be done? Yes. 

Will it be easy? Probably not. 

It might be a challenge but it’s worth it if other financing options aren’t available.

When you have no credit or cosigner, you’ll need to be wary of lenders looking to take advantage of your credit situation by offering bad credit auto loans. 

You might also encounter extra fees or tactics that aim to get you to buy a car for more than it’s worth. To become aware of the sales tactics that could cost you money, check out 11 Car Dealer Tricks. 

Now let’s dive into the steps you can take. 

How To Get A Car With No Credit Or Cosigner

With credit and cosigners set aside — getting a car loan can be a little tricky. When you do your research and take the time to find a solution, it can all work out. 

Bringing in extra cash never hurts and is likely to change the tides when buying without a cosigner. 

Peer-to-peer lending and dealer financing can be good options too. They’re often more forgiving than traditional financial institution lenders. 

You can always take the time to establish your credit before you go car shopping as well. You’ll have better approval odds, interest rates, and loan terms.

These solutions aren’t a quick fix. But they are effective at getting the car you need. You’ll need some patience when it comes to saving up for a down payment or establishing your credit history. 

Increase Your Income

Consistent income is an important factor in being able to repay your auto loan. Even with a good credit score, it wouldn’t matter much if you don’t make enough to afford the car payments.

If you come across a loan program for recent graduates or people with poor credit, you’ll still need solid proof of income to make it happen. If you’re not making enough money right now, it might be time to level up. 

If the gap in your monthly income isn’t that big, you could ask your boss for a raise to bring your salary up. Back up your request with market data for similar positions and what you’ve accomplished for the company. 

You could also pick up a part-time job or a side gig to bring in some extra cash.

If you need to raise your income by a significant amount, it might be best to switch jobs altogether. Most times negotiating a larger bump in salary is easier when you switch companies. 

Put Down a Bigger Down Payment

A larger down payment can work wonders for getting auto financing with no credit history. It lowers the amount you’ll be borrowing and helps you avoid higher interest rates by lowering the Loan to Value (LTV) on the car purchase. 

Borrowing less money to purchase your car makes you less of a risk to auto lenders. Car financing companies often make concessions for higher down payments since it lowers your LTV. The lower your LTV, the lower your interest rate will be. 

A substantial down payment can help you avoid being upside down on your car loan as well. The down payment helps you outpace the car’s depreciation or its loss in value over time.

You don’t have to have thousands saved up for a down payment either. Sometimes a few hundred dollars will help you demonstrate the ability to handle a car loan. 

If you’re going with a specialized lender or a recent grad program, you’ll likely have to come up with at least a small down payment anyway. 

Establish Your Credit

One piece of advice you’ve likely come across in your search for no credit car loans is to get a cosigner. So what about when there’s no one to cosign for you? 

It can feel like you’re stuck between a rock and a hard place, but believe it or not, you still have options:

• Get added as an authorized user on a credit card
• Get a credit builder loan
• Establish your credit through alternative sources

Cosigning is a big responsibility. Not everyone will be willing or able to sign their name on the dotted line. If you don’t make your payments on time or default on the car loan, it could leave your cosigner with a car note they weren’t planning to pay.

To make matters worse, it could ruin their credit if you make a late payment or miss a payment, but it won’t affect your credit score as much. 

A lower-risk way to build your credit history and get an auto loan is to have someone you trust add you as an authorized user to their credit card. 

As long as they’re making monthly payments on time, you’ll see the credit card account on your credit report with a positive payment history. The best part is, you don’t need purchasing access to their credit card for this to work. 

Getting declined for a loan still results in a hard inquiry on your credit report. That can be disheartening when you have no credit yet. Credit Strong offers credit builder loans with affordable monthly payments and great features even when you have no credit:

• There’s no security deposit like a secured credit card. 
• There’s no early termination fee. 
• Borrowers with no credit saw an average credit score of 630-650 within 12 months of on-time payments. 

A credit-builder account shows auto lenders your level of responsibility in repaying your debts. It also establishes a good payment history with timely payments.

Depending on the credit score your auto lender is looking for, you could build your credit history through alternative means. For example, FICO Score XD allows lenders to use information like your mobile or cable bill to establish creditworthiness. 

Shop At Different Lenders

Different lenders have different credit standards. 

A traditional lender might not be open to financing a car for someone with no credit or bad credit. An online lender, however, might accommodate bad credit scores at competitive rates since they’re part of a larger marketplace. 

Credit unions are the best ones to shop around with since they’ll have lower credit rating requirements and may offer programs for borrowers with low credit scores. Credit unions also have lower interest rates most times. 

You can research which lender would be best for your credit situation. From there, you can process a credit application with the lenders you decide to see which will offer the best deal. 

Be sure to process all your applications within 14 days to have them counted as one hard inquiry. 

Check Peer-To-Peer Lending Out

Peer-to-peer lending is growing in popularity. These loans are unsecured and allow you to show up at the dealership as a cash buyer. Since it’s unsecured, your car won’t be at risk for repossession. A huge plus for no credit car buyers. 

They’re also fairly competitive on interest rates. 

But you might want to raise your credit score first. For buyers with a credit score under 640, you stand the risk of higher interest rates or outright denials from peer-to-peer lenders. 

Consider Dealer Financing

Dealer financing can be a hit or miss. For car buyers with good credit history, we’d usually suggest looking elsewhere first. However, in many cases, dealer financing can be a viable option for borrowers with no credit history or low credit. 

You always want to do your research on the dealership to make sure they’re reputable. If you have to, make a few calls to their financing department to get more information on their programs for buyers with no credit. 

Most times, they’ll need specifics on your monthly rent payments, income sources, utility payments, and employment history to consider you for the loan. They’ll run your credit report and information past several lenders at once to see which one will offer an auto loan. 

They’ll also encourage you to get auto insurance through them as well, but you’ll likely find a better deal by checking with your insurance company first. 

Types of Loans To Avoid

As mentioned earlier, certain lenders take advantage of people looking for bad credit auto loans and charge extra high interest or employ other tactics to turn a profit. 

Here are two that you should be aware of. 

Buy Here, Pay Here Loans

Buy Here Pay Here (BHPH) loans, or “tote the note” loans can seem like a good option until you read the fine print. You’ll see dealerships with ads like “no credit, no problem!” or “Your job is your credit”. In reality, you’ll encounter downsides like: 

• Higher interest rates
• Not reporting payments to major credit bureaus
• Only allowing used car purchases
• Signed consent to GPS tracking 
• Uncommon loan terms

Car buyers with low credit scores are likely to get caught up in BHPH loans. Mainly because they don’t qualify for much else and the idea of a no credit check is appealing. In some cases, this means signing up for loan terms with weekly or biweekly payments.

They tack on a super high-interest rate—upwards of 15% most times. Significantly outpacing the interest rates that buyers with good credit get, which averages 4.09% according to Business Insider. 

If you can’t keep up with the biweekly schedule, it could lead to getting your car repossessed. This is all too common with in-house financing. The dealer picks up your car after your missed payments and quickly sells it to the next buyer with bad credit. 

Even if you manage to maintain the ramped-up payment schedule, your payments don’t get reported to major credit bureaus. So there’s no chance of raising your credit score.

These bad credit card loans aren’t federally regulated either. So they can finance the car for way more than it’s worth. Leaving you underwater on your car note. 

Subprime Auto Loans

Subprime auto loans are aimed at people with scores in the 580-619 range and are offered to people with no credit as well. 

People in this category have higher rates of defaulting on these loans, so lenders charge extra fees and assign much higher interest rates. When looking over the offer for your subprime auto loan, you could see fees like: 

• Processing or origination fees
• Prepayment penalties
• Service contracts for maintenance and repairs

They’re similar to BHPH car finance since they can have difficult repayment terms. 

No one wants to have their car repossessed. It sets you back ten steps on your credit journey and can even spur other serious financial consequences. 

Meanwhile, the subprime auto lender takes the car and moves on to the next buyer with poor credit. It’s a bad cycle you don’t want to get caught in. 

It might take extra effort to find the lending option that works for you, but it’s possible. Explore alternative lenders and look for ways to increase your odds. 

Final Thoughts

Taking the time to build your credit can help you steer clear of the pitfalls associated with bad credit car loans. Boosting your down payment and income can also help secure a loan. Don’t rush the process. Take your time to find the loan that works best for you. 

CreditStrong helps improve your credit and can positively impact the factors that determine 90% of your FICO score.

Start Building credit today