How to Get a Car Loan With No Credit History or Bad Credit


Credit is vital when making large purchases and big financial decisions. 

Big-ticket items like a house or a car need loans because not everyone has enough money to buy one outright. It can pose a problem since not every lender is comfortable with the idea of lending to those with bad or no credit. 

People with no credit exist, and they pose a risk because lenders don’t know any information about their payment behavior.

Bad lenders give a bad impression as they also pose a higher risk for lenders. 

The good news is that several solutions exist for bad or no-credit people. It’s a different approach to traditional car loans, but it is possible.

In this article we will go trough the car loan process, where to get a car loan with no credit or bad credit and how to improve your chances at approval.

Let'd dive in!

The Loan Process

When you apply for a loan, a lender will check your credit history to see if you are worth the risk. As with any entity lending money, there is a chance that the money won’t return to them, which is why a credit score is important. 

Many people in the country don’t have credit because there isn’t enough opportunity to build a credit line. To compensate for this higher risk, lenders bring in higher interest rates.

Of course, even with this fact, you should pursue the best deal available to you. Look around and check for all options available before committing to an application. 

An application becomes a credit check that reflects directly on your credit score. Applying several times within the same year can devastate your history, as it hangs on a thin thread.


Where To Get Loans If You Have No Credit or Bad Credit

There are options for those who don’t have much going for their credit. Here are some choices you can go to:

  • Credit Unions - Credit unions like 121 Financial Credit Union are more flexible with the people they work with. We are more open to those who don’t have much history yet or have had financial difficulties. While unions are smaller compared to most lenders, they can provide you with the finances you need. It doesn’t hurt to check some of our services as a part of your shopping. Of course, there is a caveat to working with credit unions. You have to be a member first, which means committing some money beforehand as a part of your membership. The good news is that some of these unions have plans which help you build credit which benefits your score and gets you the loan for the car.
  • Special Financing - Special financing programs are available to students and those who recently graduated. These programs are tailor-made, though some require that you hit a certain GPA. You’ll also likely make a down payment which acts as collateral for the loan you take. These programs are available from several automakers and some lenders like banks.
  • Specialized Lenders - Several lenders focus on working with people who have no credit or bad credit. While your credit score isn’t a requirement for them, they will want to see proof that you have a steady source of money. You’ll have to show that you can make your payments on time. In some cases, these lenders have partner dealerships and will only lend you money if you buy from their partners.


Improving Your Chances at Approval

Looking for a lender who’ll work with your credit status is one part of the puzzle. There are other ways for you to improve the chances that you’ll get approval for a car loan. 

Just because they allow you to apply doesn’t mean you’ll get the loan. Here are some things you can do:


Maintain Your Source of Income

Aside from showing that you have enough money to handle the loan, you’ll have to maintain the source of income.


Any drastic changes in your job can affect your application and turn your approval into rejection. 


If you don’t have a good source of income yet, get one and begin building your history of paychecks.


Check All Possible Lenders

Comparing rates will help you land the best deal even in your circumstances. Some lenders offer significantly low interest rates, which will help hasten your full payment of the loan. 

Others will have deals that can help you land better terms and better vehicle options. Weigh each pro and con from the various lenders before deciding on an application.


Begin Improving Your Credit Score

There are two ways to build a credit score based on a no-credit or bad credit situation. 

  1. Get a credit-builder loan whose sole purpose is to bump up your credit score. 
  2. Find a secured credit card which will also establish a good credit history. 

To get a secured credit card, you’ll need to make a security deposit which will act as the collateral for the card.

You’ll probably spend a little more time trying to fix your credit score, but it is worth it in the long run. Make sure that you are exercising the same due diligence when looking for a loan or credit card. 

Another option is to become an authorized user for another credit card if the transactions can register in your name. You’ll have to talk to the issuer to see if they allow that method.

Getting authorized for another card is a double-edged sword. If you work with a person with bad habits, then it will lower your score. The best option is to pursue one where you have control.


Find a Co-Signer

A co-signer is someone who agrees to pay the loan if you aren’t able to. It must be someone you trust and one willing to help. 

Lenders tend to favor these types of deals as it brings them more security. However, your co-signer will enter a situation with risk, so not everyone is comfortable with that.


Make a Down Payment

A down payment acts as a form of collateral while also helping you pay the loan in the long run. It’s a common strategy for special financing, and some lenders will agree to a down payment.

It can lower the cost of the loan as it counts towards your fulfillment. The down payment also becomes a way for you to avoid negative equity, meaning that you owe more to the loan than what the car is worth.


Get a Pre-Approval

One strategy that can help secure your purchase is to get a pre-approval. If you’ve decided on the lender you’re going to work with, ask them for a pre-approval letter.


The letter will contain how much the lender is willing to loan you if you apply with them. This amount will also help determine what type of vehicles you can buy.


You can work within the loan budget, and at the same time, you’ll have more assurance that you’ll land the loan. However, make sure that you can still make payments comfortably without getting stretched thin.


Can I Pay In Cash?

While paying in cash is rare, it is possible. You’ll have a better chance of securing a used car using cash than a brand new one because of some dealership’s reservations towards the source of money. 

Nevertheless, some are open to the idea of getting cash immediately and can even give you a better deal. If you find that you can save fast enough to get the car you want, you avoid the loan altogether.

In doing so, you’ll also miss the opportunity to build a credit score through the loan. If you have some cash saved, but it isn’t enough, you can borrow money from a family member. 

In this way, you save up on interest payments. Make sure that you pay the family on time as you’re risking your relationship in the process.


Be Careful of Dealerships With Financing Options

Some car dealerships target people who have bad or no credit by offering them the financial options themselves. They won’t check your credit score and will lend you the money, letting you buy the car. You’ll then pay them as a part of a written agreement.


These deals are often more expensive in the long run, as they charge very high-interest rates.


You can even see interest rates worth 20% or higher, and they’ll likely get more than double what you were willing to pay. 


Take Your Time

Getting the right loan is a decision that requires a lot of comparisons. You’ll weigh each option and see which one will be better in the long run. 

A deal may seem enticing at first, but it could end up getting a lot of your money. If you’re not in a rush, then you could work on building up credit first.

Whatever your choice, make sure that you have adequate preparation to take on the loan. Shop around, choose a plan you can realistically pay, and avoid late payments. 

You can end up with a car, a good loan deal, and a better credit score by the end of it all.

If you’re looking for a trusted credit union to work with, then consider 121 Financial Credit Union based in Jacksonville, Florida. We’ve helped many people with low or no credit scores, get their auto loans.

We’ll go through your options and help you secure a car suited for you.

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