3 Best Car Loans with No Credit History: Rates and Terms (2022)

Here are some ways to get auto loans without credit:

Check your credit first

Check your credit score even if you think you don’t have one. Many types of financial accounts can generate credit, and you can check your score for free from various online sources. You can also get a copy of your full credit report from each of the three major credit bureaus once a year at the federally-registered website AnnualCreditReport.com.

Compare loan providers

Once you have a clear picture of your credit (or lack thereof), you can start comparing auto loan providers without credit. You can find loans like these from dealerships, some banks, credit unions, and online lenders.

Although a single comparison website may provide you with multiple offers, we also recommend shopping on multiple comparison websites as each works with different lenders. And if you plan on going to a dealership, you can use online offers to negotiate your rate.

Prequalification vs. preapproval

Many lenders offer both prequalification and preapproval. Prequalification gives you an estimate of what your rate and payment could be, and it doesn’t require a credit check. Pre-approval is a financing offer based on a complete application, and it requires a rigorous credit check. You may or may not need to give your social security number to get pre-approved.

Make a bigger down payment

Making a large down payment of more than 20% can also help you secure financing. This shows the lender that you are serious about paying off the loan. It also reduces the amount of debt you’ll have to take on and could get you a lower interest rate.

Get a co-signer

A co-signer can be a big help if you can’t get a car loan without credit, especially as a first-time buyer. Even if you can get a loan, having a co-signer can help you get a lower interest rate. Of course, your co-signer must be comfortable being registered on the loan and having the loan on their credit report.

Make sure your co-signer is in a better credit position than you. If they have a low credit score, it may be best to shop around for a loan yourself.

Build your credit first

If you have the time, it might be worth building up some credit before buying a car. You can establish an average score in as little as six months if you consistently use credit wisely. One way to start is to open a credit card with a low limit and pay it off each month. Simply put some expenses you normally cover with cash on the card, like groceries or gas, and pay the balance in full.

Consider the price of the sticker

How much car you can afford depends on what you want your monthly loan payment and total cost to be. It may make more sense to get a cheaper car if you only find high interest rates. It would help you pay off your car loan faster and save you money on interest.

Avoid Buy-Here, Pay-Here Loans

Since an auto loan uses the vehicle as collateral, almost anyone can be approved if they research hard enough. A lender can repossess the vehicle if the borrower defaults on the loan, reducing risk. But that doesn’t mean that all options are good. In particular, we recommend avoiding buy-her-pay-her dealerships as they usually offer expensive loans with higher interest rates and unfavorable terms for the borrower.

Dealerships Buy Here, Pay Here directly finance auto loans and cater to borrowers with poor credit or no credit. On average, these borrowers are more likely to default on their loans, so dealerships compensate for this by charging higher loan rates and fees. You may be offered a long-term loan with an affordable payment, but you could end up paying a lot more than your car is worth.