Buying a Car With No Credit in 2024? It’s Possible, but Expect Higher Interest Rates

Vault’s Viewpoint

• You can buy a car with no credit, but expect fewer lending options, higher rates and less favorable terms.
• The main types of lenders who might have special financing for those with no credit include banks and credit unions, online lenders and car dealerships.
• If you’re not in a hurry to buy a car, consider saving for a larger down payment first, making moves to build your credit or both.

Is It Possible To Buy a Car With No Credit?

While lenders look at creditworthiness—which measures how likely you’ll be an eligible borrower and make on-time payments on your loan—they might be open to offering financing if you have a low or no credit score. To buy a car with no credit, you’ll need to work with a lender who is open to borrowers with limited credit histories.

While credit isn’t the only thing lenders look at when deciding whether to offer you a loan, it’s crucial in determining your interest rates, loan terms, repayment schedules and fees.

You can think of it as applying for a carpentry job when you lack a history or finished products to showcase as a carpenter. In turn, a potential employer might consider you a higher risk.

When you have little or no credit history of making on-time, consistent payments on a credit card or loan, a lender sees you as riskier. Because of that, they might require a higher down payment, extend a smaller loan amount or charge you a higher interest rate to protect themselves.

Pros and Cons of Buying a Car With No Credit

While buying a car with no credit might be a necessary move versus a choice, there are some pluses if you need to go this route. Let’s look at some of the potential advantages and drawbacks of purchasing a car with thin or no credit:

Pros

• Save money on interest fees if you pay in cash. If you have time to save to buy a car in outright cash, you could save significantly on interest fees.
• Lower monthly payments. If you’re able to save for a larger down payment, this could mean lower monthly payments—or a shorter repayment term. You might have a shorter time frame to be responsible for paying off your loan.

Cons

• Fewer options: Having no credit means fewer lenders are willing to work with you and give you a loan. You’ll also have to spend more time shopping around.
• Higher rates and less flexible repayment terms. You can expect higher interest rates and less favorable repayment terms, as you’re seen as a higher risk. The lender might tack on additional fees.

Options To Shop for a Car Loan With No Credit

While you might find there to be fewer options, you can still find a lender who is willing to offer an auto loan if you have no credit history:

Financing from a dealer. If you reach out to a car dealership, you might find that they have teamed up with banks or credit unions to extend financing to their customers. They might currently feature a promotion or rebates.

If you have a thin credit file, see if they have options catered to students, newcomers to the country or other folks with limited credit histories. Your best bet is to contact a nearby car dealership, explain your situation and see what financing programs they might offer.

Online lenders. Many online lenders offer prequalification, which means you can see what sort of loan you are eligible for without needing to do a credit check. Poking around and seeing what’s possible with online lenders can help you compare offers side-by-side more quickly.

Financial institutions. Banks or credit unions might be a solid place to look for a car loan. If you are an existing customer and have built a relationship with your bank or credit union, they might be more willing to offer you financing with better terms.

A bank or credit union might have a special loan program for those with no credit history. While the interest rates will likely be higher than if you had a credit score, they’ll probably be lower than what a car dealership offers.

How To Buy a Car With No Credit

Here are the steps to take if you want to buy a car with a limited credit history.

1. Do a Credit Check

You probably don’t have a credit file if you’ve never opened a line of credit, taken out a loan or had alternative payments reported to the credit bureaus. But if you opened at least a single account in the past, you can order a credit report. You can get a free credit report from each of the three main credit bureaus at AnnualCreditReport.com.

Credit monitoring services, credit card issuers and money management platforms might also offer you a free credit score.

Even if your credit history is sparse, it’s a good idea to look over your credit report. Errors, missing information and other inaccuracies can negatively impact your score.

According to the Consumer Financial Protection Bureau (CFPB), over 80%—or nearly 950,000—of complaints filed in 2023 were related to credit reporting and credit repair services. If you spot an error, you can file a dispute with the credit bureaus. They have 30 to 45 days to investigate and try to resolve the issue.

2. Get Prequalified

See if you can get prequalified. This means that the lender can give you an estimate on the loan amount, term, interest rate and fees before you officially apply. There’s no credit check required. This isn’t a guarantee, but it is a good idea of what you can expect should you officially apply.

3. Compare Loan Offers

Once you’ve received prequalification from several lenders, you can compare your offers against one another. See what the loan amounts, interest rates, repayment lengths and fees are.

A note about repayment lengths: You can often see that you need to get a shorter or longer loan term. If you decide on a shorter term, your monthly payments will be higher, but you might save on interest fees. Conversely, if your monthly payments are lower, you will end up paying more in interest throughout the loan.

4. Consider a Co-Signer

If you co-sign with someone with strong credit, that will boost your odds of getting approved for a car loan with more attractive rates and terms. The co-signer needs to know that they’ll be on the hook to take over the car payments if you’re unable to do so. Plus, your payment history will impact theirs.

5. Stay on Top of Payments

Once you’ve been approved for a loan, staying on top of your monthly payments is crucial. Your payment history makes up a good chunk of your credit score—35% of your FICO Score, to be exact. Making on-time payments can help you establish credit.

If you’re nervous about managing your payments, see if you can extend the repayment term or change the monthly payment due date.

How To Build Your Credit

Having a strong credit score can pave the way for financing for big-ticket purchases like a car and home, so it’s important to establish a solid credit history. Here are ways you can go about it:

Secured credit card: You can get a secured credit card, which requires a deposit and has a low credit limit. It’s a baby step to get a standard credit card and can help you gradually increase your score. The best secured credit cards offer rewards and other incentives for using the card responsibly.

Credit builder loan: You can also look into a credit-builder loan. It works similarly to a personal loan or auto loan with monthly payments over a set amount of time. You take out a loan in a small amount, and your payments show up on your credit report. Once the loan term ends, you can tap into the balance.

Added as an authorized user: Being added as an authorized user to someone’s credit card can also help you build credit. You won’t be liable for making payments but can still charge purchases to the card if need be. The cardholder’s payment history and credit can lift yours.

Report alternative rent payments. Lastly, explore alternative payments reported to the credit bureaus, such as your rent or utilities. Sometimes, your landlord can do this on your behalf, but they might have you pay for the processing fees. You can also sign up with a platform that reports to the bureaus on your behalf.

Applying for a card with no credit is an option, but be aware that you’ll be faced with fewer options and higher interest rates. If you’re not in a hurry, you can work on establishing your credit before financing a car. That way, you’ll be in a stronger place to scoop up lower interest rates and more favorable terms.

Make on-time payments. Make it a point to always stay on top of your payments. As payment history makes up 35% of your FICO credit score, a positive payment history will help you steadily increase your score.