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3 Best Car Loans Without Credit: Rates and Terms (2022)

3 Best Car Loans Without Credit: Rates and Terms (2022)

Here are a few ways to get car loans without credit:

Check your credit first

Check your credit score even if you don’t think you have one. Many types of financial accounts can build credit and you can check your score for free with various sources online. You can also get a copy of your full credit report once a year from each of the three major credit bureaus at the federally authorized site AnnualCreditReport.com.

Compare loan providers

Once you have a clear picture of your creditworthiness (or lack thereof), you can start comparing car loan providers without credit. You can find such loans from dealers, some banks, credit unions, and online lenders.

While a single comparison website can give you multiple offers, we also recommend that you shop from multiple comparison websites as each website works with different lenders. And if you plan on going to a dealer, you can use online offers to negotiate your rate.

Pre-qualification vs. Pre-Approval

Many lenders offer both prequalification and preapproval. Prequalification gives you an estimate of what your rate and payment might be, and it doesn’t require a hard credit check. Preapproval is a full application financing offer and does require a hard credit check. You may or may not need to provide your Social Security Number to get a pre-approval.

Make a bigger deposit

By making a large down payment of more than 20%, you can also secure the financing. This shows the lender that you are serious about paying off the loan. It also reduces the amount of debt you have to take on and can give you a lower interest rate.

Get a co-signer

A co-signer can help a lot if you can’t get a car loan without credit, especially if you’re buying a car for the first time. Even if you can get a loan, having a co-signer can help you get a lower interest rate. Of course, your co-signer should feel comfortable being listed on the loan and having the loan on their credit report.

Make sure your co-signer is in a better credit position than you. If they have a low credit score, it may be better to take out a loan yourself.

Build credit first

If you have the time, it may be worth building up some credit before buying a car. You can build an average score in just six months if you consistently use credit wisely. One way to get started is to open a low-limit credit card and pay it off each month. Just put in some expenses you normally cover with cash, such as groceries or gas, and pay the balance in full.

Consider the sticker price:

How much car can you afford? depends on what you want your monthly loan payment and total cost to be. It may make more sense to buy a cheaper car if you only find high interest rates. This would help you pay off your car loan faster and save you money on interest.

Avoid Buy-Here, Pay-Here Loans

Since a car loan uses the vehicle as collateral, almost anyone can get approved if they look hard enough. A lender can repossess the vehicle if the borrower defaults on the loan, which reduces the risk. But that doesn’t mean all options are good. In particular, we recommend avoiding buy-here-pay dealers, as they usually offer expensive loans with higher interest rates and unfavorable terms for the borrower.

Buy-here, pay-here dealers finance car loans directly and cater to borrowers with bad credit or no credit. On average, these borrowers are more likely to default on their loans, so the dealers make up for this by charging higher rates and borrowing fees. You may be offered a long-term loan with an affordable payment, but you may end up paying much more than your car is worth.