Your How-To Guide on Buying a Car With No Credit
When most people buy a car, they do so with the help of a loan. Most loans, whether they come from banks or credit unions, require certain credit scores, which serve as proxies so lenders know whether a borrower is trustworthy or not.
But what if you don’t have a credit score, either because you are still young or because your credit score reset due to past financial hardship? In this case, read the below guide on buying a car with no credit. By the end, you’ll know what your options are and how to purchase a vehicle even if your credit score is 0.
Pay the Full Price in Cash
Firstly, you can buy a car without any credit if you simply fork over the car’s total value in cash. This is true whether you buy a car at a manufacturer, a dealership, or buy a car from a private seller. Note that cash payments don’t have to actually be with bills; you can also pay with “cash” if you pay the car’s total price using a bank transfer or debit card payment, for example.
When you pay for a car’s full price in cash, you never need a loan or a credit card, and you never need a credit score. This is the go-to method for buying and selling cars on sites like Craigslist.
However, many people who need to buy cars don’t have tens of thousands of dollars saved up. Even many used vehicles demand higher asking prices than folks have in saved cash. So let’s take a look at a few other ways to buy a car with no credit.
Pay a Large Down Payment
Alternatively, you could make a large down payment toward the vehicle in question. Say that you find a used truck for sale at a used car dealership. The truck is available for $10,000. Normally, you would need to take out a loan for a significant chunk of that asking price, such as $7,000. To be approved for the loan, you would also need at least a midline credit score.
However, lenders are not legally obligated to give loans to borrowers at certain credit score thresholds. Therefore, if you make a large down payment, such as 50% or more of the car’s total asking price, a lender may still give you a loan even if you don’t have a credit score.
In the above example, say that you pay $6,000 toward the truck’s total $10,000 asking price. In that case, you would only need to borrow $4,000. You might still be able to secure a loan even if you don’t have a credit score since the lender sees that you have the ability to save up a good chunk of cash over time. That’s another sign of trustworthiness.
However, note that this method is not a surefire way to buy a car with no credit. It’s heavily dependent on the circumstances of individual sales and the opinions of lenders.
Try a Credit Union Loan
Credit unions offer lots of car loans, but they’re oftentimes more willing to give loans to applicants who don’t have any credit compared to banks. This is doubly true if you open up a checking or savings account with a credit union organization.
Even better, many popular credit unions offer specific credit-building loans to applicants with low or no credit scores. For example, if you are 18 and are trying to build credit for the first time, you can join a credit union and take out a credit-building loan. The credit building loan may help you build up a credit score initially, then take out a traditional loan to finance a vehicle purchase.
Regardless, ask about loans from credit unions if banks aren’t willing to give you a loan with no credit score. Some credit unions may give you a loan if you work for a certain employer or have a family member who is already a member of those credit unions.
Car dealerships frequently offer financing deals. With these deals, you don’t need to go through a third-party lender at all. Instead, you can simply submit an application to a car dealership.
Then they submit that application to different lenders and negotiate financing on your behalf to ensure you get your car purchase. The dealership then offers you the loan from a third-party lender, circumventing your need for a credit score.
Again, this is highly dependent on the dealership in question. Be sure to ask whether a given dealership has financing options before going to them to purchase a car. Dealers are more likely to go to bat for you and get a loan on your behalf if you have other signs of trustworthiness, such as enough money for a big down payment, a history with the dealership, etc.
There’s one last thing you can do if you don’t have credit but still need to buy a car: get a traditional loan cosigned by someone with good credit. A cosigned loan is a loan with two signers on the contract: you and someone else. The other party, who usually has to have good credit, agrees to take on financial responsibility for the loan in the event that you default on your payments.
Cosigned loans can be great solutions for teenagers or young adults who don’t have a lot of credit yet but whose parents’ credit scores qualify them for financing. However, you can get a cosigned loan with anyone who has a credit score of a certain number or higher, usually 650 or so.
But keep in mind that getting a cosigned loan is a big deal for the cosigner. You need to make sure you pay off the loan on time to avoid hurting their credit score or finances in the future.
Is It Wise To Buy a Car With No Credit?
It can be — you just have to be smart about your financial payments and situation. Lots of people buy their first cars with little to no credit, especially if they require a car for commuting or going to school. However, make sure that whatever car you buy can be paid off on time and regularly.
Buying a car with a loan is one of the best ways to build up your credit score over time. If you make regular payments, your credit score will steadily increase since you’ll show the big credit bureaus that you can be trusted with loans for large purchases.
Buying a car with no credit can be tricky, but renting a car is much easier. Therefore, if you only need a vehicle for a short amount of time, consider renting with Advantage Rent-a-Car. Our diverse fleet is accessible from convenient locations, like many major airports. Contact us today for more information!
I was asked to co-sign financing for a car. What am I being asked to do and what does this mean for me? | Consumer Financial Protection Bureau.
Credit Reports and Scores | USAGov
No Credit History? You Can Still Get a Car Loan | NerdWallet