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How to Get a Car Loan with No Credit: What You Need to Know

Signing for a car loan

You know you need a car, but you’ve probably heard having no credit can affect your ability to get one. While not having a credit history can make it more challenging to get a car loan, it’s not impossible!

There are three main ways you can get a car loan without credit. If you’re not familiar with them, that’s okay! We’ll walk you through each one so you can decide which will work best for you.

What Is a Credit Score and Why Does It Matter?

A credit score is given based on your history with credit. The number you see on a credit score is calculated by scoring models that use mathematical formulas and consider your credit history to determine your exact score. The number (between 300 and 850) predicts how likely you are to complete payments on time. The higher the number, the better your credit score.

Anytime you apply for a car loan, lenders will want to see your credit score to see if you are responsible and likely to make your payments on time. If you don’t have a credit history, it can make lenders nervous because they do not know if you will meet the financial requirements of your contract.

Even though not having a credit history isn’t the ideal situation when looking for a car loan, it’s still better than having a bad credit history. A bad credit history can destroy your chances of getting a car loan.

How to Get a Car Loan With No Credit

You’ve probably seen car dealerships with giant billboards saying “0% financing.” While this is an excellent option for car buyers, this deal will rarely apply to you if you don’t have a credit history. Even if you can’t get that deal, there’s still a chance you can get the car loan you want.

With no credit score or credit history, you can still get a car loan—but the conditions are often more complicated or expensive. For example, when you have no credit, your interest rates will often be far higher than if you had a respectable credit score.

With no credit score, there are three options for you. You can:

1. Find a Co-Signer

One of the most efficient ways to secure a car loan without credit is to find someone willing to act as a co-signer. Find someone (usually a friend or family member) with a good credit history who trusts you to make all your payments on time.

If they sign along with you on your car loan, it assures the lender that, if you don’t make a payment, your co-signer will take on the responsibility to complete your payments. You basically “borrow” your co-signer’s credit score so the lender knows they will receive the money they are owed.

Remember, when you have a co-signer, if you fail to make any of your payments or make them late, this will harm the credit score of the person acting as your co-signer. This places a significant responsibility on you to not miss payments.

2. Start with a Large Down Payment

All lenders want to make sure they will get their money back. This is why getting a loan without credit is more challenging: they don’t know if you’re trustworthy. A great way to reassure a lender you will pay them on time and in the proper amounts is to provide a large down payment when you purchase the car.

The lender will immediately have more money and are often more willing to work with you even if you have no credit history or score. A sizeable down payment can convince a lender you have the financial means to meet monthly loan payments. As an added bonus, the larger down payment will also lower your interest rate.

3. Prove Your Financial Responsibility in Other Ways

discussing financesEven without a credit history, you can prove your history of financial responsibility by showing a record of completing payments on time. Think of all the regular payments you make. These could be your cell phone bill, rent, and utilities. You can bring a history of these to your lender as non-traditional proof that you are reliable and make timely payments.

You can also bring a history of your checking account to show you have a steady job and regularly have money in your bank account that would allow you to make regular loan payments. If you are starting a new job, you could even bring in a job offer letter as proof of your annual salary.

After you have provided this information to a lender, they can use credit scoring formulas to estimate what your credit score might be if you did have credit. However, not all lenders will accept these alternative forms of proof of financial responsibility, so make sure your lender is willing to take these into consideration—or search for a new lender who is.

Consider Waiting for a While

If purchasing a car isn’t an immediate need, you may consider waiting for 3–6 months. While you wait, you can focus on building a credit score…one high enough to get better deals and have fewer difficulties when trying to secure a car loan.

Some people believe it’s better to pay for the entire vehicle with cash if they have a large sum saved up. While this may seem like the most convenient option, it’s often better to give a large down payment and use time as you pay off the car to build a credit history. This will help you with any large purchases you want to make in the future, such as a home.

Let Power Texas Finance Help You

When you need money fast for a down payment on a car, contact Power Texas Finance. We can help you get a loan quickly, and you don’t need any credit history to get one! Fill out an application in as little as a minute, and then see how our loans can help you get the cash you need when you need it.

Reach out to Power Texas Finance today and see what we can do to help you afford what you need.