Car Loans for People with No Credit
Not having a credit history makes it challenging to secure a car loan, but it’s not impossible to get financing—check out Jerry’s expert tips.
Written by John Pickhaver
Reviewed by Jessica Barrett
Securing a car loan for people with no credit may seem impossible, but fortunately, there are such things as no-credit car loans. They may be more expensive and difficult to obtain than your traditional car loan, but check out our guide that makes the process easier to navigate.
If you're like most people, buying a car is your first big purchase in life. It’s exciting, for sure, but it can be a tedious and expensive ordeal too—especially when you need to take out a
car loan
. Throw in the fact that you're a first-time buyer with little to no credit history, and it gets even more complicated. Fortunately, there are ways to secure a no-credit car loan. But be warned, lenders typically charge much higher rates for these types of loans, and there are a few more hoops you’ll have to go through to get one.
But lucky for you, the
car insurance
comparison app Jerry
is here to steer you through the entire process so you can get one step closer to taking home your new ride. And just to round it out, we'll show you how to save on insurance for that new car with our trusted quote comparison tool
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How do car loans work?
A car loan is a type of secured loan that enables you to pay off the cost of a car over time. When you borrow money from a bank or another lender to purchase a car, you’re entering into an agreement to pay back the amount in full, plus interest, in monthly installments over
a set loan term
. The word secured in secured loan means that your car serves as collateral for the debt. If you can’t stay on track with payments, your lender can repossess your car. But if you’re able to keep up with your payment schedule, you’ll become the full legal owner of your vehicle at the end of the loan term!
Because lenders take things like
credit score
and debt-to-income (DTI) ratios into account when processing loan applications, it can be difficult to get a car loan without credit—but it’s not impossible. Why do auto lenders like to see credit history before giving a loan?
Your credit history and credit score are critical factors when it comes to trying to get any kind of loan, especially an auto loan.
Lenders like to see your credit score and review your credit history because each provides lenders with data points about your financial behavior. They use this to assess whether or not you’ll be a responsible borrower who will pay the loan back in full and on time.
If you’re able to hold off on buying a car, it may be in your best interest to do so and put in the time to establish a credit history. Financial service firms offer products like secured credit cards or credit-builder loans that enable you to build credit, which will then make you a more attractive borrower to lenders.
If taking time to build credit isn’t an option for you right now, that doesn’t mean you're out of luck in getting a loan. It just means that the process will be a little more challenging since lenders have less information about your financial profile.
Key Takeaway Building credit and having a good credit score are positive indicators lenders like to see before offering a loan, especially a loan with a low interest rate.
How to get a car loan without credit
There are a few ways to get a car loan without credit. Each option has its advantages and disadvantages. We’ll go over each one below.
Also, like in any financial situation, it’s important to be cautious of any predatory behavior when trying to obtain a loan, especially with no credit.
Pro Tip If it seems too good to be true (like a pay-day loan), it’s probably too good to be true.
Dealership loan
If you purchase your car from a dealer, odds are they will offer financing options in-house regardless of your credit history. With a dealership you get convenience, but in this case, convenience comes at a steep price!
Dealers tend to offer significantly higher rates than lenders, which leads to you paying more interest and makes keeping up with payments more difficult. And unfortunately, those rates increase exponentially when you have zero credit history.
But if you are in a good financial situation, in that you have a steady paycheck and some savings, this can be a good option when you don’t have credit. Plus, if you make payments on time, you’ll be well on your way to building solid credit, which means you could potentially even refinance your loan for a new lower rate down the road.
MORE:
Credit union loan
If you have no credit but want to avoid high mark-ups from the dealership, a bank or credit union could be an option. Credit unions tend to offer lower interest rates and greater odds of approval for a car loan than a traditional bank.
Credit unions also tend to cater to the local community more. They may be more flexible with your situation and work with you to develop a manageable auto loan—something other loan providers are unlikely to do. But you need to be proactive. Show up with pay stubs and bank records so lenders can get a better idea of your financial situation.
MORE: 5 reasons you should consider an auto loan from a credit union
Online lenders
There are many online financing companies that provide loan services if you don’t have credit. Like the dealership, these rates tend to be higher and you always need to be mindful of predatory behavior.
But again, if you are in a comfortable financial situation and reviewed the terms carefully, online lenders could be a good choice for you in the short term. Remember, once you start building credit, there’s always the potential to refinance into a better loan later.
MORE: The pros and cons of car loan refinancing
Private lenders
Maybe you have a family member, friend, or partner who would be willing to help you out. Maybe you could even work out a private repayment plan with little to no interest. This is often the case with teens or young adults buying their first car with the help of their parents.
If you pursue this arrangement, just ensure that both parties have a high level of trust and that a detailed agreement and plan is established.
How to get a better deal on a car loan with no credit
Getting a car loan without credit can be a big win. But don’t let that victory stop you from pursuing a better deal on your interest and loan terms. There are several ways you can score a great deal on your new ride without having a credit history.
Get pre-approved
Some online lenders or credit unions will
pre-approve you for a car loan
even with little to no credit history. Heading into the dealership pre-approved gives you some negotiation clout allowing you to compare rates with the dealer’s in-house financing options. Negotiate a better deal
Do your due diligence! The price of a new car can fluctuate by thousands of dollars in the negotiation phase. Dealers can take advantage of buyers who are ill-informed or talk them into unnecessary features or protection plans. Show up to the dealership knowing what you want and be aware of prices and all fees associated with the car you want.
MORE:
Make a large down payment
If you’ve been saving up money for a car for a while now, you may be able to make
a significant down payment
. Not only does this make lenders more comfortable giving you a loan, but a large down payment can result in you paying less interest over time. Plus, a sizable cash payment up front can help offset the effects of depreciation. In other words, it prevents you from owing more on your car loan than your vehicle is actually worth.
Get a cosigner
Consider asking someone you trust, like a family member or partner, to act as a cosigner on your loan if you don’t qualify on your own. When you take out a loan with a cosigner, you’ll likely get a lower interest rate too.
This person would become responsible for the loan if you fail to make payments on time, though. So, make sure you are prepared financially or you risk ruining your relationship with your cosigner.
How to save on car insurance with Jerry
While you can get a car loan with no credit, you can’t drive a car without car insurance. Fortunately, the process of getting car insurance isn’t nearly as complicated, especially with
Jerry
, the No. 1-rated insurance app.Buying car insurance is easy and convenient with Jerry. Just download the app, answer a few easy questions, and in 45 seconds Jerry will set you up with customized quotes from top providers to help you find the lowest rate available—period.
The average Jerry user saves $887 a year on car insurance.
“Jerrywas easy to use with great savings. I was afraid to get car insurance because of my age and new car. But with this app, I found my own affordable policy. I definitely recommend it for young drivers.” —Xena S.
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