How to Get a Car Loan with No Credit

No Credit No Problem

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Having good credit is incredibly helpful: It will help you more easily secure a line of credit, will be a signal to prospective employers that you are a responsible person, and will make it easier for you to purchase a home or rent an apartment. Of course, the opposite is true for having bad credit: It will make the financial aspects of your life increasingly difficult. 

But what does it mean when you have no credit at all? 

While it’s definitely better to have no credit than it is to have bad credit, you should definitely take steps to build up your credit score as soon as you are able to do so, especially if you’re looking to make a big purchase in the future – such as a new or used vehicle. 

Getting a car loan with no credit can be difficult, but it is not impossible.

One of the most obvious things you can do to assist you in getting a car loan is saving up a down payment. The larger your down payment is, the better your chances of getting a loan. A down payment shows your commitment to the purchase and shows you have some hard work invested -- and let’s be honest: if you can’t afford even a down payment, why should anyone trust you with a car and a car loan, and all of the financial responsibilities those two things entail? Once you have saved up your down payment, however, you are ready to start your car purchasing journey, even if you don’t have any credit to speak of. To get a car loan without any credit, you’re going to need to do a lot of work to prove you’re a financial risk worth taking. Begin by gathering some documentation, next ask for help from family and friends, and finally, ask the bank or car dealer for a loan.

Gather Documentation

A major factor in getting approved for a car loan is your credit history. If you do not have any credit history, the lender is going to look in other places to verify if you can afford the payment and confirm the likelihood you will repay your debt. Gather the following documentation to substantiate your history:

  1. Copy of your bank statement
  2. Documentation of any recurring bills such as a utility or phone bill
  3. Proof of employment history -- multiple pay stubs should work

It is important to have, at a minimum, all the documentation listed above. Credit history is not required to open a bank account, however, it will confirm if your account is in good standing. Utility and phone bills are also easily set up without credit history and can provide proof to the lender that you can pay a recurring bill on time. A source of a steady income is also important. The longer you have been with a single employer, the better, because to shows the lender you can hold a job for the long-haul.

Ask Family and Friends

Family and friends are a great place to start looking for help in financing a vehicle when you have no credit. If they do not have the ability to give you the full loan, it might be possible to have them co-sign on a loan. A co-signer is an individual other than the borrower who signs a promissory note and in so doing assumes equal liability for the debt. To put it simply, you are using someone else’s credit score to purchase your vehicle. The bill comes to you, but if you don’t pay, the cosigner is responsible for the loan -- and their credit will suffer if they don’t make the payments. A late payment cannot only damage your family member’s credit but also your relationship with them. If you do get the full loan amount from someone you know, layout a solid plan of repayment, potentially with the help of a trusted legal advisor, so that the situation is less likely to get sticky. At the minimum, you should:

  1. Agree to a set interest rate and time frame of repayment
  2. Print out an amortization schedule, has a free calculator
  3. Always make your payments on time and do your best to pay off your loan early 

Inquire About a Loan at a Bank or Car Dealership

Start at the bank or credit union where you have an active account. They will have easy access to your account history and will be more likely to give you a loan if you have a prior relationship with them. If you do not have a bank account, set one up as soon as possible. You are more likely to get a better deal at your bank than a car dealership. However, if your bank is unable to help you, try the car dealership. Whether you are at the bank or the car dealership, have the documentation you gathered from the list above ready to go.

A car loan can be complicated to obtain without prior credit. Building good credit is vital for your financial future. With a little planning, you will be driving your new set of wheels in no time.