Last Updated on February 27, 2023 by Bernard Juchli
Without credit history and cosigner, you will have difficulties getting an auto loan approval. However, this article reveals how to get a car loan with no credit history and no cosigner. As the popular saying goes, “anything is possible.”
Someone with a credit history, and a good one precisely, has a better chance of getting an auto loan. Without history but with a willing cosigner, the loan may still be approved. Having none of these would often mean tough luck but there are ways around it.
Can you get a car without a cosigner and no credit history?
You can get a car without a cosigner and no credit history but the question is “how?” There are plenty of options, including alternative lenders, the alternative credit history (checking account, utility bill, etc.), and even some dealerships.
We will get to discover these options and of course their disadvantages.
How to get a car loan with no credit history and no cosigner
We have established that you may be able to get a car loan with no credit history or even a cosigner. So, what are your available options? Below are the ways to get a car loan with no credit history and no cosigner:
Credit unions and other community banks
You probably stand no chance of getting loan approval from your bank. However, a small community bank or credit union may help. You only have to know the right institution to look at.
These institutions are traditionally designed to help those without credit. They look beyond your credit score. You could even be asked for proof of income, employment, monthly utility payments, pay stubs, job stability, etc. They just want to be certain that you have feasible means to repay the loan.
The disadvantage of this method is increased interest. Of course, the community bank or credit union considers you a high risk.
Your local dealership
At your one-stop-shop car lot, the dealer can be your lender. It is also common for dealers not to overly consider your credit score or even a cosigner to approve your loan. Nevertheless, a cosigner makes the deal a banger.
Typically, dealerships are interested in what brings profit, they want to retain you as a customer and believe you can become the big customer they are looking for.
They will consider aspects such as your job and job type, income, etc. In the case of income, the dealership might require your bank statement to determine whether you should get the auto loan approval.
The disadvantage of this method is that your interest rate will be higher. You may also not enjoy specific benefits as the dealership is looking to reduce the risk as much as it can. Some car lots limit this to used cars only, so you may not be able to get a brand-new car without a credit history and no cosigner.
Increased down payment
Generally, a large down payment reduces the lender’s risk when financing your car. This may be convincing enough for the lender to believe you can repay the loan even though you have no credit history or cosigner.
The lender may offer repayment terms like a lower interest rate which saves the money you pay on the car. In this case, you want to look at putting up to 30% down. If the car is worth $10,000, your down payment becomes $3,000 to convince the lender.
A down payment can reduce your loan-to-value ratio (LTV), this measures the loan balance versus the value of the car.
Your LTV is better when it is lower. If the value of the car is higher than the loan balance, you have positive equity. With a lower LTV, you can easily refinance your car loan in the future when you have improved income. You can also get a lower interest rate.
Alternative credit data
Getting an auto loan approval does not always rely on your credit history or cosigner, at least in some cases. Your cell phone, checking account, utility bill, and pay stubs can be substituted in place of your credit history. The lender only has to use credit scoring formulas like the FICO score XD to determine your auto loan request.
Unfortunately, it is not common for lenders to follow this credit score model. In this case, you want to research your local dealerships to discover available offers.
A lender can help you to get a car loan even if you have poor credit and no cosigner. This does not apply to all lenders, and lenders that will accept you with a poor credit history are called subprime lenders.
They use special finance dealers, so you do not get to sit with them for a pre-approved loan. You will apply for the loan indirectly through a dealership.
A subprime lender does not rely on your credit score for you to get an auto loan approval. They can consider your down payment, employment, and many more. They may request to see your bank statement to be sure you can repay the debt.
Borrow from your retirement account
Your retirement account can be the account you need to get an auto loan, so you do not need a cosigner. You do not also need to have a credit history since you can cover the full cost of the car.
Unfortunately, this could be a bad move, especially when thinking about your future. However, if you can replace the loan in your retirement account after buying the car, it may be a good move. The purpose of the car you are buying also determines if it is worth it to borrow from your retirement account.
Borrowing from your retirement account can attract a penalty. You want to carefully review the fine print before you proceed. The penalty here refers to the fees you will pay for borrowing from the account. It may also be subject to taxes and the amount of money you can borrow may be limited.
The credit history and cosigner
Although you can get a car loan without a credit history and no cosigner, you get to pay higher interest rates. You may not access optimal payment options you would enjoy if you have a credit history or a cosigner with good credit.
Typically, lenders have their requirements before they approve your car loan. If you are not eligible, they may be able to bring up new offers or advise you on what to do.
The lender sees you as high risk when you have no credit history or a cosigner, and so they are careful not to be on the losing side.
What credit score do I need to buy a car without a cosigner?
If you want to build your credit score, you can do so but make sure to reach a 570+ score in the FICO credit score which ranges from 300 to 850. This can take time but is worth it since you may be having to obtain loans in the future.
As you can see, getting an auto loan without credit history or a cosigner comes with a price, you get to pay higher interest rates.