How to Buy a Car With No Credit

One of the most financially terrifying things that can happen is to have your car break down beyond repair when you have no credit or bad credit. A car isn’t a luxury for most people. You need it to get to work, to get your kids to school, and to run even the most basic errands such as grocery shopping.

So if your car has conked out, and you don’t have the credit history to qualify for an auto loan, what are you going to do to get another set of wheels on the road?

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In this article

    Cash Is King

    When it comes to tapping your emergency savings piggy bank, few things qualify as an emergency quite like repairing or replacing a broken-down car. Without a functioning vehicle, you’re going to have trouble getting to work and keeping money coming in, unless you work from home or can take public transit.

    Indeed, if you have the money saved up to buy a new or gently used car in cash, stop reading this article and just go get yourself a car. Having to empty out your savings might sting a bit, but it’s absolutely, positively your best option when it comes to replacing your car. After all, when you pay cash, you’re getting the very best price, because you won’t pay anything extra in interest like you would with a car loan.

    But what if you don’t have the cash to replace your car?

    No Credit Car Loans

    If you’ve wondered whether you can get a car loan with no credit history, the answer is yes. You can even get car loans with bad credit history, but expect to pay through the nose when it comes to your interest rate.

    The good news is that, like most financial services these days, you can often get a better deal when working with online lenders. Several companies, such as Carvana, and offer loans to people with imperfect or nonexistent credit histories.

    Similar to how Progressive shows you a few different quotes for auto insurance, some of these companies will give you competing offers for car loans. Still others will match rates you find on other websites. That’s good, because it allows you to pick the company that’s going to give you the best rate.

    And a better rate really matters, as the interest on a no credit car loan is going to cost you hundreds, if not thousands of dollars over time. Just because the interest is spaced out over three, five, or even seven years doesn’t make it cost any less — it just means that you notice it less.

    How to Get the Most Out of a No Credit Auto Loan

    There are two good ways to get the best no-credit auto loan possible:

    Get a co-signer: This can be a dangerous proposition for someone with bad credit. For those with no credit history, but a personal track record of paying bills on time and generally being responsible with money, it can be just what the doctor ordered. Getting a co-signer makes another person as responsible for your auto loan as you are. You’re making the payments, but if you default, the co-signer is going to be on the hook. This can seriously sour relationships between you and your friend or family member who co-signs for you. However, if you’re confident that you can make the payments and determined not to pay exorbitant interest rates, talk to someone you trust — and more importantly, someone who trusts you – about co-signing the loan.

    Big down payment: Ok, so you don’t have enough cash saved up to buy a new car or even a used one that’s going to hold up for very long. That’s why you’ve read this far. However, can you afford a sizeable down payment? Just as emptying out your emergency savings to buy a car in cash is a totally reasonable use of that money if you need transportation to work, so is taking that money and making a big down payment. Lenders are going to extend you better rates and loan terms for having that much cash on hand, and you’ll be able to pay back the loan sooner, saving you a significant sum of money.

    Check Your Auto Loan Rates

    View our top-rated lenders and find the best rates today. It’s quick and easy.

    Fewer things are more frustrating than having to buy a car when you least expect it – and when you’re not in a good position to qualify for a low-interest car loan. Paying a higher rate as a penalty for your bad credit or lack of credit history only compounds the problem.

    But the good news is that you can use a no credit car loan to build your credit. And the next time you have to go down to the dealership, hopefully you’ll have the cash on hand to get yourself a reliable ride without having to go into debt. Even if you don’t have the money to buy a car in cash, you’ll at least have a credit history that allows you to pay a lower interest rate.

    Nicholas Pell

    Contributing Writer

    Nicholas Pell is a freelance personal finance writer specializing in student loans, consumer credit and living a champagne life on a Kool-Aid budget. In addition to The Simple Dollar, he’s written for Business Insider, Fox Business, WiseBread and MainStreet.