If you need a car and have no credit, you may feel like you're out of options when it comes to getting an auto loan. The truth is there are ways you can finance a vehicle without credit. Here are the different types of car loans you can explore, as well as your typical vehicle options.
No Credit Check Financing
Many people with no credit think the only option for an auto loan is to go through a buy here pay here (BHPH) dealership. These dealers, also known as in-house financing dealers, are also lenders and typically don't rely on a credit check for loan approvals.
BHPH lots only sell used cars, and though you may be able to more easily get an auto loan without credit, you're going to pay to do this. Interest rates with in-house lenders tend to be much higher than at other dealers, and you're often asked to provide a large down payment.
BHPH dealerships aren’t the only option when it comes to financing a car with no credit. Subprime lenders, another type of bad credit lender, work with many dealers where you can finance a new or used vehicle.
Vehicle Options Without Credit
Subprime lenders often help people who have no credit or bad credit. They do this by relying on factors in addition to your credit score to help get you approved for an auto loan. These lenders only work through special finance dealerships.
At a special finance dealer, you may be able to finance a new car, but these are generally harder to qualify for, especially if you have no credit or bad credit. You stand a better chance of financing a regular used car, or a certified pre-owned (CPO) vehicle. Though both types of cars are used, there are key differences between the two.
- Used vehicles – Typical used cars at most dealers can be a range of makes and models. These vehicles vary in age, mileage, and condition, and are usually sold as is, with no warranty. They may have been cleaned and polished before being resold, but generally haven't had major work done.
- Certified pre-owned cars – These vehicles are the cream of the crop when it comes to used cars. In order to be manufacturer-certified, a vehicle has to meet age, mileage, and condition requirements established by an automaker, is inspected and refurbished by a manufacturer-certified technician, and carries some form of factory-backed warranty to help cover certain repairs for a set amount of time. These cars are typically newer than standard used vehicles, and have fewer miles on them. Many CPO cars are just coming off lease, which generally means they're only two to three years old.
Independent dealerships may offer a selection of both used cars and dealer-certified used vehicles. Be careful here; a dealer-certified car may seem to be a better option than a plain ol' used vehicle, but dealer-certified isn't the same as a manufacturer-certified pre-owned car.
Manufacturer-certified vehicles meet the requirements established by an automaker, which are normally able to be found on the manufacturer’s website. Dealer-certified cars simply meet the standards of that dealership, which doesn’t carry as much weight.
Why a Used Car Is a Good Choice With No Credit
As a borrower with no credit, a used vehicle may be your best bet for financing in many cases. Used cars are typically much less expensive than new vehicles.
However, depending on your credit, or lack of credit, you may see higher than average interest rates on used cars. Since it’s easier to value new vehicles than used cars, you may only qualify for a shorter loan term with a used vehicle, as well.
CPO cars are more expensive than a standard used vehicle, but they come with the peace of mind that you just can't get from a used car at a BHPH lot. CPO vehicles may even have a slightly lower interest rate than a regular used car, too.
The biggest reason a used vehicle is a good choice with no credit is that you're not battling depreciation. Depreciation is the loss of value over time, and it can't be stopped. However, new cars lose much more of their value over the first few years, generally dropping around 20% in their value the first year alone.
A used vehicle, especially a CPO car, has already seen the biggest drop in value, which means it's likely to cost you less up front, and hold more value while you drive – as long as you take care of your vehicle.
Finance a Vehicle Without Credit
If you're looking for a place to finance a car without credit and don't want to go to a BHPH lot, Auto Credit Express wants to help. We specialize in matching consumers to local dealerships that have the lending resources people need when they're struggling with no credit, bad credit, or even bankruptcy. To get the process started, fill out our fast and free auto loan request form.