How to Get a Car Loan with No Credit History and No Cosigner

Michael Collins
Apr 16, 2021

Lenders that offer larger loans like car loans want to know they can trust borrowers before they lend them thousands of dollars. By having a good credit score or cosigning on a car loan, borrowers are more likely to get their car loan application approved. However, you might have little to no credit history and might not have anyone available to cosign. How are you supposed to get a car loan in this credit situation? Let’s take a look at how to get a car loan with no credit history and no cosigner. 

What You Need to Know About Car Loans

If you live paycheck to paycheck and frequently take out debt to cover some purchases, you likely already know how small personal loans work. Larger loans like car loans operate differently, however. 

What is a Car Loan?

Cars are expensive and it can take years of strict saving to afford one. However, people often can’t wait to save for years to have access to a car. People need to use cars everyday to get to work, get groceries, and get anywhere else they might need to go. Instead of saving for years, individuals can take out a car loan to help pay for their car. 

A car loan is similar to any other type of loan in that you have access to money you otherwise do not have. If you have $5,000 and want to buy a car that is $15,000, you can take out an auto loan for $10,000 to help you finance this purchase. Once you get the loan, you use the money to buy the car. You then begin paying off the loan plus interest. While loan terms vary, you will likely be making monthly payments for the loan which include the principle of the loan and interest as well. You make these payments until the life of the loan expires and you have paid back all of your debt. 

Compared to smaller personal loans, car loans take much longer to pay off and can range anywhere from 5 to 15 years in length. 

Down Payments

Auto loan lenders will almost always require you to make a down payment to get your loan. A down payment is essentially a portion of the price of the car that you pay for while the lender pays for the rest. Lenders often have borrowers make down payments to prove they have an ability to pay off the loan as well as to have borrowers put some “skin in the game.” 

Down payments are fairly expensive and are something you likely can’t avoid if you want to get an auto loan. While down payment requirements depend on the lender, they tend to follow a pattern. If you are buying a new car, the down payment will typically be 20% of the price of the car. If you want to take out a loan to buy a $10,000 car, you will likely need to put up $2,000 for a down payment to get the loan. On the other hand, if you are buying a used car the down payment will likely only be 10% the value of the car. 

Secured vs Unsecured 

A secured loan is a loan that requires you to put up some sort of collateral to get the loan. In other words, you promise to give your lender something of value if you fail to pay back your complete the loan term. On the other hand, unsecured loans do not require the borrower to put any collateral up for the loan. 

The vast majority of car loans are secured loans. Lenders require the borrowers to put up the car they plan to purchase as collateral. If the borrower defaults on the loan, the lender has the right to take the car and sell it to recoup some of the money that was lost from the borrower defaulting. 

As you might be able to see, secured loans are much less risky for lenders and are much riskier for the borrowers. On the other hand, unsecured loans are more risky for the lender and are less risky for the borrower. Keep this in mind when you are getting a car loan.

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Challenges for First Time Car Buyers 

Buying a car is a big deal. Cars can cost thousands of dollars and are a huge investment for you. If you are a new car buyer, it can be difficult to know what to expect and what to worry about. Let’s take a look at some of the challenges for first time car buyers. 

Down Payments 

Again, down payments are expensive. Having to cough up 10%-20% of the entire value of the car you are buying can be difficult to do. Trying to make this payment when you haven’t planned in advance might be next to impossible. To make your life easier, you need to make sure you have the money to make a down payment before you ever apply to get the loan. 

Buying a car is likely not a decision that is made on a whim. Lots of time and thinking must go into deciding to buy a car as well as deciding which car to buy. The same amount of time and thinking must go into figuring out how you are going to pay for the car. 

Start saving for a down payment long before you ever apply to get a car loan. The last thing you want is to have to find thousands of dollars to make a down payment when the time comes. Do yourself a favor and have a nest egg of cash on the sidelines before you apply for the loan to make sure you have enough to make a down payment. 

No Credit / Bad Credit 

Again, auto loan lenders want to know that they can trust you before they lend you thousands of dollars to buy a car. One such way they can see if they can trust you is through your credit score and your credit history. If you have a high credit score and a long credit history of making payments on loans, lenders will likely approve you for your car loan. However, if you have no credit history or have a bad credit score, this can be difficult. 

Lenders would like to see you have experience with paying off larger loans before lending you thousands of dollars. But how are you supposed to get this experience if you can’t find a big loan like an auto loan? This is the Catch-22 people often find themselves in when they try to get a car loan for the first time.

Having a bad credit score alerts lenders you may not have been so diligent about paying back loans in the past. If you plan to get an auto loan in the next six months, read this article to know how to improve your credit situation score. Doing so will not only increase your chances of getting an auto loan approved but it also may present more favorable loan options.

How to Get a Car Loan With No Credit History and No Cosigner 

If you have no credit history and do not want to cosign the loan, your financing options for a car loan will be limited but not exhausted. Companies are always fighting to loan out money to borrowers, even borrowers with no credit history. However, showing lenders you are trustworthy beyond having a good credit history and a cosigner will really improve the chances of your loan application being approved. Let’s look at how exactly you can do this. 

Save Enough Money for a Sizable Down Payment

Like we mentioned earlier, down payments are something that most auto loan lenders will require from their borrowers. While it is often a requirement, as a borrower you can negotiate your down payment in a way that increases your chances of getting a loan. This is difficult but may be necessary to get an auto loan with no credit history and no cosigner. 

If a lender requires you to make a 10% down payment for the car, consider offering to make a 15% or 20% down payment instead. By offering to make a larger down payment, you are showing your lender you have the means to make payments and you are committed to paying off the car loan. With no credit history and no cosigner it will be hard to convince your lender to trust you. However, paying a larger down payment is one of the best ways to get your auto loan lender to trust you. 

While making a larger down payment might not be possible in your current financial situation, consider planning very far in advance for this if you have no credit history or no cosigner. Considering practicing strict budgeting months or years in advance with these budgeting apps to make sure you can meet your savings goal. Doing so might be the difference between being able to get your car and not. 

Gather Proof of Good Payment Habits 

On the surface level, if you have no credit history and no cosigner for the loan, there isn’t really a way for your auto lender to know if they can trust you or not. Finding proof that you can be trusted will go a long way in convincing your lender to give you an auto loan.

Whether you know it or not you have likely been making consistent payments that can prove you can be trusted to make payments. For example, you likely have a utility bill or phone bill that you pay for every single month without even thinking about it. A history of payments like this can serve as proof to your lender that you are consistent with meeting monthly payment requirements in full and in a timely manner. 

In terms of proving that you have the source of income to be able to pay off a loan, pay stubs and bank statements can help with this. Showing that you have money in your account and are being paid on a consistent basis will show your lender that you have the ability to pay off the loan. Gather these statements and provide them to your lender. 

Look for Other Lenders

If you are continually being denied an auto loan, you may be looking in the wrong place. Places like big commercial banks have very strict criteria borrowers must meet to get their loans and they are not likely to give someone with no credit history a loan. However, other places have less strict criteria and may be more willing to lend to you. 

Credit unions may be one place to turn to. Credit unions are oftentimes more willing to work with customers on loans than big banks are.

Likewise, the car dealership where you are getting your car from may offer auto loans. Dealerships want your business and may be happy to offer you an auto loan for you to buy one of their cars. While not every car dealership does this, your specific car dealership may be willing to work with you to offer you different auto loan options for your car. 

If you cannot find any lenders in your area that are willing to offer you a loan, consider an online lender. While online loans come with their risks, you may find more lenders that are willing to give you money to buy a car. 

Consider a Credit Builder Loan with Possible Finance

Here at Possible Finance, we offer a loan product that not only helps our customers get the money they need but also helps to build value for them at the same time by building their credit score. 

If you have no credit or have a low credit score, it can be difficult to get a loan or a line of credit. Even when you can, many lenders do not build your credit score if you pay the money back. This keeps borrowers in a cycle that is difficult to break. Possible aims to disrupt this.

When applying for a loan with Possible, we do not check your credit score. This means that whether you have the worst credit score or have no credit score at all, you can still get a loan. Our loans are paid back in four installments over the course of a month. As you successfully make payments, we report to the credit bureaus and your credit history gets built over time. As time passes, this improves your credit score!

Considering getting a loan with Possible Finance? Download our app today and get started!

Michael Collins

Michael has a passion for writing and brought that passion to Possible. He enjoys reading everything there is to know about film, sports, and finance. His studies in college have allowed him to be on the forefront of business knowledge so he can better inform his readers.

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