How Do You Buy a Car With No Credit? – Complete Guide

No credit refers to a lack of credit records. It implies to somebody who has not been using credit facilities such as credit cards, loans, or any form of mainstream borrowing. It translates to a low credit score of zero. A credit score is the numerical figure statement that is as a result of scrutinizing an individual’s credit records. Your credit records contain information on how you have been borrowing and repaying. Some people may not repay at all while others quit after partial repayment or forego for a period, then pick up later and continue. This data forms the basis of your credit history, and it is what lenders refer to before giving out credits.

Your ability to repay a loan, as demonstrated by your credit files, is what will inform your creditworthiness failure or taking many periods than stipulated to repay results in a low credit score. A credit score is vital since it is what tells a lender when approving loans, on the maximum limit that can be allowed to an individual, the duration for repayment, and at what interest rate. There are several types of loans available offered by different lenders on various platforms. Technology and the growing demand for borrowing have led to the rise of digital finance companies who lend out money online. Some will consider your creditworthiness before approval, while others completely ignore and give out a loan regardless of your credit score. Such loans are known as no credit check.

No credit check loans are an ideal option for those with a poor credit score or lack a credit history. A poor credit score can be a result of the lack of a credit past or due to failure to repay previous loans. In case you are wondering how do you buy a car with no credit, then you have found the solution. However, some car dealers will offer no credit check; others choose to follow the system and check for your credit score just to gauge your worthiness. A low score will not earn you a loan from such dealers.

How Do You Buy a Car With No Credit?

Buy A Car With No Credit

Before we tell you how to buy a car with no credit, let’s first answer an important question, “Why Do Car Dealerships Check For Credit?” Your credit history is critical when you are applying for financing through a dealership. However, the lender requires your permission to access this vital data. Your borrowing history will enable the dealer to acquire additional information regarding your financial status and further as a precaution measure to help safeguard them against crooked individuals.

To retrieve your credit files, the lender will need your SSN (Social Security Number). Apart from validating your identity, the report depicts your creditworthiness and will be used to determine the maximum amount you are eligible to borrow, the interest rate payable per annum and the duration for repayment. From the credit files, the lender will get a better understanding of whether the applicant is a worthy risk and figure out reasonable terms for the loan contract. Individuals with a very low credit score are most likely to be declined.

If your credit history is poor, there are chances that your interest rate may be charged higher as compared to someone with a positive credit score. It is advisable to determine a suitable payment range that fits not far from your reach and choose a car that falls well within your budget. In case a dealer pulls your credit files without your consent, you can challenge the report with the credit bureaus.

What’s The Average Score For Auto Financing?

There is no set universal minimum average score needed for a car loan. Your score will significantly determine whether you will get an approval and the outlined terms for the loan. Even though a poor credit history may not necessarily deny you a loan, it will lead to lean terms and high-interest rates. All in all, the lower the score, the higher the interest charged.

Generally, a low score attracts fewer bids and higher rates charged as interest for the borrowed amount. It is prudent that before setting out to look for a loan to purchase a car, confirm your score and gain a clear understanding of how it is going to affect your borrowing terms.

To help shed more light, here’s a breakdown of how your credit score will influence your auto financing rates for new, used and refinanced cars:

Excellent Credit (750 and above)

The average car loan interest rate given out to individuals with an excellent credit score of 750 or higher is 4.97% for a new car, 5.22% for a used car, and 4.31% for a refinanced car.

Good Credit (700-749)

Someone with a good credit score between 700 and 749 gets an interest rate of 5.02% for a new car, 5.27% for a used car, and 4.88% for a refinanced car.

Fair Credit (600-699)

The average auto loan interest rate for a person with a fair credit score ranging between 600 and 699 is 11.12% for a new car, 11.37% for a used car, and 8.04% for a refinanced car.

Bad Credit (451-599)

Individuals with poor credit or subprime borrowers falling between 451 and 599 score range marks are allowed an average interest rate of 17.93% for a new car, 18.18% for a used car, and 15.42% for a refinanced car.

Very Bad Credit (450 and below)

Someone with very low credit or no credit history is also known as a deep subprime borrower. When it comes to this category, dealers are hesitant, and loans are rarely approved. However, the ones approved end up paying very high-interest rates that stand at an average of 27.99% for a new car, 28.24% for a used car, and 18.08% for a refinanced car.

Requirements For An Auto Loan

The necessary documents needed to enable someone to purchase a car on loan varies across different lenders. A person’s creditworthiness greatly influences the set minimum requirements. There is a low risk associated with a good credit score, making lenders not as concerned with specific details of a borrower. On the other hand, a lack of credit history or a bad one makes an individual a high risk in the eye of the financier. Therefore, much more information must divulge before a loan of such kind is signed off. Read below and other essential requirements when buying a car on loan.

1) Proof of income

A lender needs to confirm that a borrower is in current employment with a stable income to guarantee that the person is capable of repaying the loan. The simplest way to fulfill this requirement is by furnishing the creditor with your previous month pay stub that contains your annual to date earnings. However, for a bad credit individual, there is a set minimum income requirement that varies across creditors. For a self-employed person, you need to provide the previous years tax history bearing in mind that the number of years depends on the creditor and past three months bank statements.

2) Proof of residence

For a creditor to ascertain your address, give your recent utility bill or any other official communication detailing your name and listed address.

3) Proof of identity

The information that you provide of your identity must be genuine when applying for an auto loan. You will need to submit an ID, which may be in the form of a state issued card, passport, home titles, certificates of stock, or ownership documents of other cars in your name. Apart from the ID, you will also require to give two months recent bank statements and present utility bill in your name that matches the address on your ID.

4) Personal references

The creditors may need you to nominate a person or people who can provide information about you if and when you are unreachable or in case they need clarifications. The list should contain names, addresses, phone numbers, and email addresses for purposes of filing.

5) Trade documentation

For a person who is trading in a car, the lender requires registration papers and the vehicle title. Additional documents that will enable the creditor to establish the worth of the car is essential. Bear in mind that the amount the vehicle is worth will determine how much the lender will loan you.

Who Needs A No Credit Check Car Financing?

No credit check loans are for people who cannot be able to qualify for loans that require a high credit score. It might have been occasioned by:

  • No credit – It refers to those who do not have a history of the previous borrowing. Lack of a credit history may be as a result of taking too long to borrow or those who are still new to credit facilities such as students who have just graduated from college. For a first time car buyer, no credit check is a suitable option
  • Bankruptcy – It is a legal proceeding filed by a person in court seeking debt relief. For the court to grant your plea, you must be able to demonstrate your inability to repay your creditors before a sitting magistrate. In most cases, it originates through a court order which has been initiated by a debtor. Many lenders regard a person with a history of bankruptcy as a high-risk borrower. Therefore, if you are lucky to secure an auto loan, then your interest rates will be very high. You will also be required to deposit a considerable amount as a down payment or present collateral of similar worth. You can avoid all these by opting for a no credit check loan.
  • Low credit score – How to buy a car with no credit has is easy if you have a low credit score cast your doubts aside. No credit check has you covered.
  • Car repossession history – A person who may at one point lose his car to creditors due to defaulting, has a slim chance of getting another car loan. However, if you approach a no credit check car dealer, then you don’t have to worry anymore about your credit history.

Why Need an Alternative?

There are several reasons to consider applying for no credit check car loan. The obvious ones are listed below:

  • They provide instant loan facilities for people with bad credit history. The lender does a soft background check on your creditworthiness.
  • No credit loans are processed much faster, and payments are received the same day. It means that you will get your car within a day.
  • The lenders give reasonable rates as compared to others considering your credit history.
  • Unlike bank loans, you can apply for no credit check car loans online, making it convenient and readily accessible.

An Essential Checklist: How Do You Buy a Car With No Credit?

How do you buy a car with no credit has been made possible and accessible in recent days. However, there may be few financing options available, and you may have unpleasant encounters that those with a good credit score are unlikely to experience. On top of all the requirements when purchasing a car on loan to get a no credit check auto approval, you will also need to:

1) Get a good cosigner

A cosigner is a person who agrees to repay your loan in case you may default. A good cosigner should have a solid credit score to increase your odds of approval. Consider taking someone you trust or a family member.

2) Have a consistent paycheck

A lender who is ready to give you a loan without considering your credit history will require proof of a reliable income source. The financier needs to be sure that you can repay the loan. You can do this by giving the creditor your pay stub, which you received no less than the past thirty days. It should detail your year to date income history.

3) Be ready to give a significant down payment

Some creditors may require a considerable amount as a down payment to get approval. The lender knowing that you are a high risk customer needs these massive amounts to mitigate the risk. But the right side is the higher your down payment, the lesser you require to borrow. A substantial down payment brings down your interest rate, making you not as much credit risk in the eye of the lender.

Frequently Asked Questions (FAQ)

Bottom Line

To buy a car with no credit check is a suitable option for those with low credit scores or simply have no credit history. However, be ready to pay a significant down payment. Getting a good cosigner with a strong credit history will increase your chances of getting a no credit check with favorable rates.