Getting your first auto loan is exciting – you finally get to own a vehicle! However, if you’ve never used credit before and don’t have a credit history, getting approved on your own can be tough, but there are ways you can get a first-time car loan when you have no credit.
How to Get a Car Loan with No Credit
The first thing you need to do is apply for a pre-approval with your personal bank or credit union. Although not always a guarantee, they may be willing to approve you for an auto loan if you have a good relationship.
If they turn you down, your next step is to find a special finance dealership – which we can help you with – and get prepared. Special finance dealers are signed up with subprime lenders that know how to handle unique credit situations, such as having no credit. These lenders base approvals on multiple factors in addition to your credit score.
As a first-time car buyer with no credit history, you can expect a subprime lender to ask for the following:
- Proof of income – A recent computer-generated pay stub showing your year-to-date earnings. Most subprime lenders need a minimum gross (pre-tax) monthly income of $1,500 to $2,000 from one job.
- Proof of residence – Lenders want to make sure you have a stable place of residence where the vehicle is going to be parked. Bring in a copy of a recent utility bill in your name showing the address listed on the application.
- Proof of phone – Subprime lenders also want to make sure you’re reachable if they need to contact you. Bring in a copy of a recent phone bill in your name at your address. It can be a landline or contract cell phone, but not a prepaid phone.
- List of personal references – Lenders generally ask for a list of five to eight personal references that includes names, addresses, email addresses, and home and work phone numbers.
- Down payment – You're usually required to put money down when taking out a subprime auto loan. The amount needed varies by lender, but most ask for a minimum of $1,000 or 10% of the car’s selling price, whichever is less.
Because you have no credit history, it’s possible a lender may require you to have a cosigner. Cosigners let you “borrow” their good credit by attaching themselves to the loan, which helps you get approved.
How to Increase Your Approval Odds
Now that you know the requirements for getting a first-time auto loan when you have no credit, how can you increase your approval odds and qualify for better terms?
You might be able to improve your approval odds and maybe even qualify for a better interest rate if you add a cosigner with excellent credit or add your spouse as a co-borrower to the loan.
When your co-borrower is your spouse, you can combine incomes to qualify for the loan together. This could increase your approval odds, and possibly even lead to receiving better terms.
If you can’t get a cosigner or co-borrower but want to increase your approval odds, you can make a larger down payment. Making the minimum down payment is OK, but we recommend that you make the biggest down payment you can comfortably afford if you have bad credit or no credit.
This saves you money on the overall cost of the loan by reducing the interest charges because you borrow less. This can be a big deal when you have no credit and receive a higher than average interest rate.
Ready to Find a Dealership?
Once you’ve finished preparations, gathered all the right documents, and saved up for a down payment, it’s time to find a dealership to work with.
You could drive around town searching for a dealer that’s willing to work with you, but Auto Credit Express wants you to save the time and money this takes. We can point you in the direction of a dealership that offers first-time auto loans when you have no credit.
We’ve been assisting consumers with little to no credit for over 20 years. Our service is free, and comes with no obligation; all you have to do is fill out our car loan request form, and we’ll work to match you with a special finance dealer near you.