Is it possible to buy a car with no credit or bad credit?

Yes, in most cases it’s possible. There are several options that may be available to you.

Buy with cash

Although this is the most obvious answer to the question of buying a car without credit, it’s one that is often overlooked. Many people who might otherwise not be able to qualify for a car loan might have sources of cash that they haven’t considered. One source might be family or friends who are willing to loan you the money you need. Or your bank or credit union might be willing to provide a small personal loan that can be combined with any money that you’ve saved.

If you have some savings, or can otherwise raise money by selling things you own, you might consider buying a cheap “starter” car instead of the more expensive car you really want. You can them trade up as your finances and credit improve in the future.

First-time buyer loans

Many new-car dealers can provide loans to first-time buyers who have no credit. The loans come from finance companies or banks used by the dealers, and usually require a relatively large down payment and a steady full-time job. You may also have to pay a higher-than-normal interest rate.  Make sure you can afford the monthly payments, which can be considerably higher than for someone with good credit. This is a great way to establish and build credit for the next time you need it.

Get a co-signer

A co-signer is someone who is willing to sign a loan agreement with you. They promise to take over payments if you fail to do so. They are not usually a co-owner and have no ownership value in the vehicle, even if they end up paying off the loan. It’s usually a family member or very close friend who has good credit and a good income. Co-signers should be aware that the car loan shows up as a debt on their own credit report, as well as on the primary borrower’s. If for some reason the primary borrower and the co-signer fail to make payments — which is considered a “default” — it appears on both credit reports.

Sub-prime lenders

There are auto loan providers that specialize in car loans for people with no credit or poor credit. They are called sub-prime lenders. Many dealers work with such lenders to help provide loans to their customers who would not be able to get a loan from a normal bank or loan source. Such lenders may require a substantial down payment, depending on the vehicle value, and possibly a higher-than-normal interest rate. We recommend checking out reputable online car loan providers such as Auto Credit Express and InstantCarLoan.com to avoid dealer markups.

Buy-here-pay-here dealers

Buy-here-pay-here (BHPH) used car dealers should be a last resort solution for car buyers with no credit or bad credit. BHPH dealers finance their own car loans and don’t use banks or finance companies. They typically don’t check credit, only requiring that the customer have a good steady job and the ability to repay the loan. The cars are typically overpriced older models with lots of miles, and potentially have lots of problems. Loan interest rates are almost always the maximum allowed by state usury laws, often as high as 20% or more. Payment plans are very strict and any delay in making payments can result in a repossession and loss of all money already paid.