Can You Buy a Car With No Credit?

Having no credit means you don’t have a credit report/credit profile or credit history. Everyone starts with no credit, but you can quickly establish credit in various ways. Many people first obtain credit with a credit card. Parents can add their young adult children as authorized users on their credit cards to help them establish credit at a young age. 

Lenders treat individuals with no credit and bad credit similarly. While individuals with low credit scores present a slightly higher risk, those without credit are unproven. It typically takes about six to 12 months to establish credit, depending on what types of credit you work with. 

What is your credit score if you have no credit? 

If you have no credit, you have no credit score. It’s a common misconception that you start at zero points, but the truth is that it varies from person to person. Your credit score may start low when you first obtain credit, but you can build your credit with each on-time payment. Leasing a car can help you build credit to earn a lower interest when buying a car. 

Unfortunately, there’s no global answer to the question, “What credit score is needed to buy a car?” Instead, car dealerships often set their own rules in determining who they approve. Many buy here, pay here dealerships require lower credit scores than traditional dealerships, but those requirements often come with higher interest rates, stiff fees, and prepayment penalties.

The closer your FICO credit score is to 700, the better your chances of approval for a car loan. Dealerships assess your risk as a borrower based on your credit score, so if you can present a lower financial risk, you’re more likely to gain approval and a lower interest rate. Remember that your credit score often fluctuates as you obtain various types of credit, so a perfect score isn’t always achievable. 

You can get a car loan with no credit or cosigner, but it requires some additional effort. Most dealerships want to see that you’ve invested the necessary time into financially establishing yourself. A sizeable down payment can also help sweeten the pot. 

Opening a checking and savings account is one of the first steps you should take before attempting to buy a new car without a cosigner or any credit. Proof of a steady income (such as pay stubs) and long-term permanent residence can also demonstrate your low level of risk. If you can submit a list of references to vouch for you, dealerships also tend to look more kindly on your application. 

Buying a car without credit can propel you forward with a valuable first entry on your credit report. In addition, you’ll learn how much your credit score increases after paying off a car. Below are various ways you can buy a car with no credit.  

Determine your monthly budget

It’s easy enough to think you can afford a few extra dollars if the advertised monthly payment goes slightly over budget. However, if you can obtain a car loan with no credit, plan for a high interest rate to offset your unknown risk. Even a single percentage can make a difference in your monthly payment.  

Don’t forget to factor in costs like documentation fees (titling, registration, licensing), sales tax, and any additional dealership fees. You must also obtain car insurance and pay for gas. Note that car insurance on a financed car is often higher than if you opt only for state minimum requirements, meaning you’ll pay more than liability-only coverage in most cases. 

Save up for a bigger down payment

Industry experts advise seasoned or first-time car buyers to put down as much as they can afford on a car loan. A sizable down payment can increase your equity, lower your financed amount, and reduce the risk of owing more on the car than it’s worth (referred to as being “underwater”). Dealerships may be more willing to accept your loan application if you put down a few thousand dollars. 

Pay cash to avoid auto financing

Stacking up enough cash to pay down more than half of the car’s selling price can have you reconsidering your approach. If you’ve already accrued over half the car’s selling price, sometimes it pays to save up and pay cash rather than finance. You’ll pay no interest, and credit never enters the equation. Buying the new or used car outright means you can’t use it to build credit, but loan options aren’t your only available credit-building choice. 

Get a cosigner

Personal references can help demonstrate your character, but a cosigner, like a friend or family member, often makes your application look better to auto lenders. The signer must agree to assume your financial responsibilities should you default on the loan, which means they also take on a certain amount of risk. Their presence relieves the burden from the lender, especially if your cosigner’s credit score is relatively high. 

Obtain third-party pre-qualification or pre-approval 

Even though dealerships may turn away your finance application, you shouldn’t take no for an answer. Instead, you can look for third-party lending through: 

• Banks
• Credit unions
• Online lenders and financial institutions

It pays to know the difference between prequalification and preapproval, especially for auto loans. Prequalifications don’t require a hard credit check and provide an estimate of your monthly payment and interest rate. Preapprovals, however, perform a hard credit check and accurately reflect your loan rate and loan payment unless there’s a drastic change to your credit report. 

While it may be tempting to put in several applications, doing so can negatively impact your credit, even if you don’t have any. Remember that credit bureaus will treat several applications submitted within 14 days as a single credit inquiry, so plan accordingly. Be sure to read the fine print and review the loan terms, as longer terms mean you pay more in interest, and on the loan over time. 

Avoid dealer add-ons 

Obtaining financing for a car loan with no credit is achievable, but only at specific costs that depend on your individual situation. For instance, your part-time income may earn you approval for a car listed at $11,000, even without credit. However, increasing that list price to $13,000 due to dealership add-ons could result in the dealership rejecting your application. Most often, avoiding dealer add-ons is a good rule of thumb, even if you have the credit to qualify for a higher loan amount.