Can You Buy a Car Without Credit History or a Cosigner — and Should You?

Copy space shot of mid adult man selling his old car and giving customer a clipboard to sign after he purchased it.
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Trying to get a car with bad credit? If you have a low FICO score, it won’t necessarily dash your hopes. It just means you’ll probably be charged a higher interest rate on your car loan.

A poor credit score can be the result of everything from making late payments on loans to simply not having much of a credit history. People with credit scores lower than 650 or 660 are considered “subprime,” which means they fall into a category marked as “risky” by many lenders. But that doesn’t mean lenders will shun them altogether.

So, bad credit car financing is an option. However, such loans come with both good and bad news. The good news is that folks with low credit scores can still get loans, even if they are subprime auto loans. This can make a huge difference for someone who needs a car to get to work or school.

The bad news is that borrowers with bruised credit might have to pay higher interest rates. If you’re wondering how to get a car loan with bad credit, find out everything you need to know to increase your chances of getting auto financing. Then it all comes down to one question: Can you buy a car without credit history or a cosigner? And the follow-up question is if you should. GOBankingRates asked some experts what to do if you find yourself in this situation. Here’s their advice.

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Check Your Credit Report Before Applying for a Loan

If you have bad credit, the first step to getting so-called bad-credit car loans is to give yourself some time to prepare before shopping for a loan. Several months before you begin your loan search, order your credit report from one of the three major credit reporting agencies: Experian, Equifax or TransUnion. By law, you are entitled to one free credit report from each agency annually.

“…lenders view your credit history as evidence of your financial habits, so it’s important to know what is on your credit report and look for lenders who are willing to work with those with limited credit history,” said Tariro Goronga, the CEO of DriveSafe Driving Schools. “Doing this can help you get a better interest rate.”

Identify any negative strikes on your report, including mistakes. If you are able to repair these “risk factors” on one credit report, it will eventually be reflected on the other two, as well. Such repairs can help you boost your bad credit score before you apply for a loan.

Getting your actual credit score will cost money. However, doing so can help you prepare for the types of interest rates lenders might offer you.

Understand Where To Apply for a Car Loan If You Have Bad Credit

If you have bad credit, the first place to start your loan search should be your credit union or bank. Since you already have a relationship with the institution, you might have a better chance of getting your loan approved.

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Joe Giranda, the director of sales and marketing for CFR Classic, suggested seeking lenders with less strict eligibility requirements.

“Subprime lenders specialize in working with people that have less than perfect credit, but they come with higher interest rates to offset the risk,” Giranda said. “Credit scores within the subprime range typically sit between 580 and 619, but there’s no actual cut-off.”

He described how borrowers with FICO scores under 500 can still get approved for car loans, although with higher interest rates — around 14.08% for new cars and “a staggering 21.32% for used vehicles.”

“Buyers can also consider putting at least 20% down so that the loan balance is lower and more manageable,” Giranda said. “You may need more time to prepare for this, but that’s part of the car purchase process — it takes time to build up your savings, strengthen your credit history and find the right financing options.”

Be sure to shop around for the best rate and bring that rate to the dealership — it might help you negotiate. Getting a car loan with bad credit is not impossible, but it might take some leg work.

Know That Monthly Payments Aren’t as Important as Terms and Rates

Most of the time, auto loan terms come in 12-month increments: 24 months, 36 months, 48 months, 60 months, 72 months and 84 months. Most new car loans are in the 65-month range, which means it will take about 5 1/2 years to pay off the loan.

Longer loans are tempting, because the monthly payments are lower. However, they aren’t your best option over the long haul. The longer you draw out the loan, the more you’ll pay in interest. And that can be particularly costly if you have a high interest rate.

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Of course, nobody wants a big monthly car payment. But if it means saving thousands at the end of your term, a bigger monthly payment can be worth it. One way to keep your term short and minimize the monthly payment is to choose a car that is less expensive.

Do Your Homework Before You Agree to Add-Ons

Once you have your car picked out and are ready to sign the paperwork, the salesperson will most likely try to sell you on extras, like extended warranties and security etchings.

For the most part, experts say the extended warranty isn’t worth the money. The only time it’s worth considering is if you’re buying a car with established dependability issues. So, before you step into the negotiating room, understand the history of the car you’re trying to buy so that you can make an informed decision about the extended warranty.

With a security etching, the dealership etches your vehicle identification number, or VIN, on your car window. This is said to make your car a less likely target of theft. Generally speaking, experts contend that security etching is not worth the hundreds of dollars it costs, so you should probably pass on that add-on.

Beware of Yo-Yo Scams

Yo-yo financing is the term for a scam in which a car dealer tells the buyer everything is good with the financing. A few days after the new owner has driven the car off the lot, the dealer calls the buyer back to say the financing deal fell through.

At that point, the buyer is told they either need to pay more money or to sign a different contract — often with less desirable terms than the original deal. If the buyer doesn’t agree, the seller might try to take the car back or report it as stolen.

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Trying to change the terms of the deal in this way is illegal. Buyers should keep their contract with them and not in the glove compartment. If you are a victim of a yo-yo scam, contact a lawyer.

Prove Your Creditworthiness Beyond Your Credit Score

Although your credit score can paint a negative picture, your day-to-day life might be altogether different. Perhaps you’ve worked at the same job for many years, lived in the same apartment or house for a while, or kept up your payments on some regular service for a long time. Bringing in proof of such stable behavior can help prove you are worthy of a loan.

Items to bring with you when applying for a loan include:

  • Pay stubs
  • Reference letters from your landlord or mortgage lender
  • Other receipts that show you’re reliable and responsible

You also have the option of having a cosigner come into the deal in order to show that even if you are not financially stable enough on your own, someone will back you up and ensure payments are delivered.

“A cosigner is someone who agrees to sign and be responsible for a loan or credit application with you,” Goronga said. “If you are unable to pay off the loan, it will be their responsibility. A prime example of this is when two people purchase a car together and one partner is unable to make the monthly payments – the cosigner must then cover them.”

In the end, getting car financing for bad credit borrowers is not an impossible task. You might find that with enough research and planning, you end up getting a deal that works out for you, your budget and your credit score.

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Jake Arky contributed to the reporting for this article.

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