How to Get a Car Loan with Little to No Credit

Looking to get a car loan with little credit? Maybe get a car loan with no credit? You’re not alone. Research by the Consumer Financial Protection Bureau found that 26 million American adults have no histories with national credit reporting agencies. An additional 19 million have credit reports that are so limited or out of date that they are unscorable. If you’re one of these Americans, you don’t have to be stuck riding the bus or bumming rides from friends. With the right information and a little hard work, you can get behind the wheel of a new or used car in no time. Just follow these 7 steps to get a car loan with little to no credit!

7 Steps for Getting a Car Loan with Little Credit

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1. Check your credit report. It may include inaccurate information that’s unfairly impacting your credit score, an issue that’s relatively common. In 2016, more than 43,000 complaints posted to the Consumer Financial Protection Bureau’s website were complaints about credit reporting. A whopping 74% of these complaints were about the credit reports including incorrect information, notes MarketWatch.

You’re allowed one free copy of your credit report from each of the credit reporting bureaus (Equifax, Experian, and TransUnion) each year. Before trying to get a car loan with little to no credit, check your report for errors. Then, dispute any errors with the credit bureau who distributed the report. Once any errors are corrected, you may find that your credit score improves. Even if there aren’t any errors that need resolving, it’s still a good idea to see exactly where you stand before applying for an auto loan. Check your credit scores from all three bureaus at FreeScore360.com.

2. Open a checking or savings account. You may already have a bank account in your name, but if not, this is the perfect time to open one. (And it can help you with the next step!). A bank account can act as financial proof that you can afford your car loan payments. While it’s not technically required in order to be approved for financing, it could improve your chances with lenders. Opening and maintaining a savings account can also help you establish healthy saving habits and get closer to your dream of buying that new car— one dollar at a time!

3. Save for a big down payment. The bigger your down payment, the less you’ll need to borrow. It’ll make a car loan easier to get with no credit and you’ll end up paying less for the car in the long run. How much should you put down? An Edmunds analysis of new- and used- car purchases in 2017 showed that the average car down payment was about 12%, however, conventional wisdom says that you should shoot for 20%. As someone who’s looking to get a car loan with little to no credit, you’ll want to lean toward a down payment that’s closer to 20%.

“Making a bigger down payment could increase the chances of being approved for a loan,” advises Edmunds. “Banks and finance companies want to lower their risk of not being paid, so they prefer loans of smaller amounts. The more you put down, the greater your chances will be of being approved.”

What about those catchy “zero down/zero APR” advertisements? Forget about them, for now at least. As few as 10% of shoppers actually qualify for them, says Edmunds, and your credit typically has to be in “great shape.”

4. Get a co-signer with better, more established credit. In the eyes of a lender, a co-signer reduces risk. If you aren’t able to make your loan payments for any reason, the cosigner is expected to do so. Co-signers are additional assurance that the loan will be repaid. A co-signer can be a friend, spouse, parent, or other family member. Lenders can’t require that you have a co-signer if you’re trying to get a car loan with little to no credit, but they may not offer you the loan based on your financial situation alone. A co-signer can make it possible for you to get financing approval or a better interest rate.

5. Compare financing options. Shop around! As much as you want to get behind the wheel of a new car as soon as possible, patience can pay off. Your first option might not be your best financing option, especially when you’re trying to get a car loan with minimal credit. Different lenders offer different loan terms and interest rates. Even loans with the same interest rate will yield different payment amounts depending on the length of the loan, so make sure you’re comparing “apples to apples” before committing to one auto loan.

6. Build your credit. Ideally, you’ll work to build and improve your credit so that you’re eligible for the loan amount, interest rate, and loan terms you really want. This process can involve getting a credit card, paying bills on time, and staying within your credit limit—all habits that can take months to establish. For many people, though, waiting to buy a car until you have perfect credit isn’t realistic. Life doesn’t stop. The kids still need to get to school. You need to get to work. Thankfully, making car payments on time is a great way to build your credit (and keep your means of transportation).

7. Apply for a car loan! Whether you’re working on saving up for a big down payment or searching for a co-signer, you’ve got to start somewhere. At myAutoLoan, we work to meet your needs as quickly as possible. We welcome all drivers to apply to get a car loan, even drivers with little to no credit. Use our application and you’ll save time and money, since we only present you with offers that match your situation. Submit your auto loan application today and compare up to four offers in minutes! (Remember step #5?!)