If you have no credit history because you've had no loans and few --- if any --- credit cards, getting a car loan is going to be a challenge, but that doesn't mean it's impossible. The key to finding financing is taking your time, shopping around and knowing where your credit stands. You have options if your credit score is very low, so avoid the temptation to get desperate.
The Credit Lowdown
If your credit is below 550, it may be almost impossible to get a car loan from a bank, even one designed for those with bad credit. Scores between 550 and 680 are considered "subprime," which means they command a higher interest rate than those with a higher credit score. Those below 620 are particularly low, with the highest interest rates in the car loan industry, but you may find a bank willing to lend to you. To know where you stand and how hard it may be to get a car loan, consider paying for a copy of your credit score.
Loans for College Students
Certain online lenders offer financing options for college students or other first-time buyers who wish to buy a new car. These have high interest rates but may be the only option if you have a sparse credit history. If you have no credit simply because you haven't used credit for very long, this might be an option. Always research other choices first because of the high APR on these loans. These loans often prey on uneducated borrowers with high fees, so do your homework before you apply.
Co-Signer
If you need a loan and have credit so low that no bank will give you a loan, you may be able to get one with a co-signer. If you choose to go this route, make sure both your signature and the signature of your co-signer are on the car loan. Certain lenders accept just the signature of the co-signer, which places the car's title in his name. Choose someone with a solid credit score to offset your negative one.
Establishing Credit
If you can wait to get a loan, you can take a few steps to improve your credit and make it much easier to get a car loan. By opening a couple of credit cards, using them regularly and then paying off the bills each month, you can establish credit history and improve your chances of qualifying for a loan. Try to maintain the same job and avoid moving from one home to another, as these can also affect how a lender looks at you when considering your loan application.
Alternatives
The alternatives to getting a car loan when you have no credit revolve around finding a way to pay cash for the car. If you can wait to purchase the car and save the money you would have been making toward the car payment, eventually having enough to pay cash, you can avoid the loan process. If you need a car now and know someone who's willing to offer you a loan, you can make payments to that individual rather than the bank. This option doesn't help improve your credit history, and it can create a strain on your relationship with that person, so use it cautiously.
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