Get a Car Loan With No Credit or Bad Credit

If you have bad credit or no credit, you may be wondering how you’ll ever get approved for a car loan. High interest rates and large monthly payments may have scared you away. With a little prep, however, getting an auto loan with bad credit or no credit is possible. Follow this guide to learn how.


Getting a Car Loan if You Have Bad Credit

  1. Order your credit reports. Having your credit reports can give you a detailed picture of where you stand, and can help you pinpoint any errors that may appear on the reports. You can then address these errors before you approach lenders. The three major credit agencies offer free reports once a year.
    • Pay for your credit scores. Seeing your credit score will cost a few dollars, but it can be worth it to get an idea of how the lenders will treat you. Your scores will likely vary slightly between the credit agencies.
  2. Make all your payments for other bills. Before you go loan shopping, make an effort to pay all of your other bills on time for at least six months. While this won’t have a major impact on your credit, it will show the lenders that you have been responsible lately, and may help get you the loan.
  3. Go to your bank first. Check with your financial institution before going to the dealership or other lenders. Your bank may be able to give you favorable terms, and will usually help their customers more than they would a stranger.
  4. Check with your insurance company. Some insurance companies offer financing as well. Check with them because, like financial institutions, they are more likely to treat their own customers more favorably.
  5. Shop around. Don’t take the first loan you are offered, especially if the terms aren’t very good. It will be harder to find a loan with bad credit, and most will come with high interest rates. Try to get your financing before approaching the dealership, as dealership loans are likely to be more expensive.
    • Try well-known institutions before trying loan shops. Go to reputable banks and other financial institutions before trying lenders that specialize in bad credit. Focus on institutions that are known for dealing heavily in auto loans.
  6. Focus on the terms and not on the monthly payments. If you get low monthly payments, but have to pay the loan back for more than 7 years, it’s probably not worth it. You want to try to find the loan that will give you the lowest interest rate and the shortest monthly payments.[1]
    • Make sure terms are final. Some dealerships will increase the monthly payments on your car after a few months. Always read the fine print to ensure that you aren’t getting tricked into a more expensive payment situation.
  7. Refinance your loan. After a year of making payments on your loan, you can attempt to get it refinanced. This is especially useful if your financial situation and credit has improved since you took on the loan. Even lowering the interest rate by 1% can save you lots of money in the long run.

Getting a Car Loan if You Have No Credit

  1. Open a bank account. If you have no credit history, the first step towards getting a car loan is opening a bank account. A bank account will be your first step into the world of credit, and will be the base of your loan. You do not need any prior credit to open a basic checking or savings account.
  2. Save up for a down payment. A large down payment on a car will make the loan easier to get, and will result in having to pay less for the car in the long run. If you can, try to save up between 10-20% of the total cost of the car.[2] The more you can save for the down payment, the less you’ll have to pay later on.
  3. Gather your documents. You will need a copy of your new bank statement, proof of employment history, and any paid bills such as your phone or utilities. These will show the lender that you are able to make payments on a loan.
  4. Get a cosigner. A cosigner will help shoulder the responsibility of your payments. Be very aware of the risk that your cosigner is in. If you don’t make your payments, it falls on the cosigner to do so, otherwise their credit gets damaged. Make sure that you have a good relationship with your cosigner, and treat the loan with respect.
  5. Ask your bank about loans first. Your financial institution is more likely to give you a favorable loan than any other place. Banks like to do business with their own customers, so you will be treated more favorably than a stranger.
    • Check with other reputable banks and lending institutions before moving on to car dealerships. Finding a loan with no credit is usually easier than finding one with bad credit.
  6. Ask car dealerships next. If your bank is unable to get a loan for you, ask the dealership where you plan to purchase your car what kind of loan options they offer. A dealer is very likely to try to get a loan for you so that they can make a profit. Be aware that a dealership loan will usually be more expensive than a bank loan.
  7. Make payments on time. Once you have your loan, always make your monthly payments on time. This will be your first major entry in your credit history, and starting strong will lead to much better credit in the future.

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