You’ll need to find a bad credit dealership and lender to get a car loan
without credit or a cosigner. Expect high-interest rates if you opt for this option and consider refinancing down the line. Purchasing a car can be an exciting experience, but it’s expensive, too, and not everyone has enough cash stashed away to purchase the car outright
. That’s why most car buyers choose to finance their car purchases through a loan, which requires a decent credit score and sometimes a cosigner. But what happens when you have no credit or cosigner? This is a problem many first-time car buyers face. It’s not impossible to get a car with a bad credit score, limited credit history, or a cosigner, but it will require taking a few extra steps. In this article, we’ll tell you everything you need to know about getting a car with no credit or cosigner including what to expect, how to improve your credit score, and how to find the right lender.
What to expect for a car loan with bad credit and no cosigner
Applying for auto financing with poor credit and no cosigner? There’s a chance you won’t qualify for financing and your loan application will be denied by traditional banks.
Loan eligibility requirements vary depending on the financial institution. Big banks are likely to require borrowers to put money down and have a good credit score or a family member as a cosigner to be approved for an auto loan. But alternative lenders will look at your income and your ability to actually pay the bills to prove your reliability.
Car dealerships, online lenders, and credit unions are more likely to approve borrowers with low credit and no co-signer and are your best bet for financing a new car or used car purchase without a credit report.
If you are approved for car financing, be prepared for loan options that include less-than-ideal loan terms such as higher interest rates, limited loan amounts, and short-term fixed monthly payments.
MORE: 5 reasons you should consider an auto loan from a credit union
Assess your budget and credit history
No matter where you decide to apply for car financing, it’s important that you assess your budget and credit history to determine how much you can actually afford to spend on a vehicle.
Remember, a vehicle costs more than the monthly car payments. Here’s what you should consider when deciding on a maximum budget:
Titling and registration fees
Your credit history will affect the loan amount you receive and ultimately determine the car you can purchase. That’s because car lenders examine credit history to ensure the borrower has a record of paying their bills on time and responsible borrowing.
Borrowers with a poor credit score or limited credit history will receive less financing at higher interest rates than someone with a credit profile in good standing because lenders consider them more of a credit risk.
MORE: How will a car loan impact my credit score?
How to improve credit score
If you are worried about how your credit score will affect your loan eligibility, there are steps you can take to improve your score including:
Build your credit profile: Opening new accounts with lenders and credit card issuers in your name will be reported to major credit bureaus and improve your credit score. Try credit-builder loans and credit cards.
Catch up on past-due payments: While the late payments will remain on your credit report for up to seven years, keeping your account current will be good for your score.
Pay down account balances: One of the best ways to improve your credit score is by paying down your credit card balance to lower your credit utilization rate.
Set up automatic payments: Missing payments can happen but will seriously hurt your credit score. Setting up automatic payments is one of the easiest ways to ensure you won’t miss a payment ever again.
The best (and fastest!) way to improve your credit score will depend on what’s hurting your score in the first place. Take a look at your credit report to find out what is negatively impacting your credit score and take the appropriate steps to improve it.
MORE: What is a good credit score for a car loan?
Find a bad credit dealership and lender
If you need a car but don’t have time to improve your credit score, you can find a bad credit dealership and lender to get approved for a car loan, also known as a “no credit check” loan. While this isn’t the best financing option, it can help you get a car.
These buy here pay here dealerships
offer in-house financing options at much higher interest rates than traditional auto loans. You can expect an interest rate of around 20% with a buy here pay here loan compared to the 3% or 5% you’d get at a bank or credit union. Combine high-interest rates with hidden fees, and you could end up being upside down on your loan
, which is when you pay more than your car is actually worth over the lifespan of the loan. Think long and hard before committing to a loan with such a high interest rate.
MORE: What is a good interest rate on a car?
Determine your down payment
As a general rule of thumb, you should try to pay at least 20% of the vehicle’s sticker price as a down payment when you are shopping for a car loan.
There are a lot of benefits to making a larger down payment
such as improving your chances of getting a car loan, helping you negotiate a lower interest rate with the dealership, and lowering your monthly car payments. Paying more for your car upfront will also reduce the risk of you being upside down on a high-interest loan if you have a low credit score and no cosigner. If you can’t afford a 20% down payment, you should consider opting for a more affordable model or a used car instead. You may also want to add gap insurance
to your car insurance policy, which will offset the cost if your car is totaled and you do go upside down on a loan. Consider a refinance down the line
If you opt for an auto loan with high-interest rates, you should consider refinancing your car loan after a year to change your monthly payments and interest rates. When you refinance your car, the new lender will pay off the original lender and then you’ll begin a payment plan with a new lender.
Refinancing your car can negatively impact your credit score but only temporarily. In fact, the ability to pay off your lower monthly payments and interest rates can even increase your credit in the long run.
MORE: What is the best time to refinance a car?
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