How to Buy a Car with Bad Credit and No Cosigner

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If you have bad credit but need an auto loan, you may wonder what your options are. Fortunately, you don’t need a cosigner to take one out. As long as you do some research and shop around, you can find bad credit auto loans without a cosigner.

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There are a number of lenders and companies that do not require a co signer and are willing to lend to those with less-than-perfect credit. Here’s everything you need to know about bad credit car loans without a cosigner.

Why Credit Matters When You Buy a Car

First and foremost, let’s discuss why credit is important to consider if you’re a car shopper. Before a lender or company lends you money to buy a car, they want to know that you’ll repay it, with interest, by the end of the loan term in your agreement. Your credit can give them a good idea of whether you will.

A high credit score positions you as a creditworthy buyer who will likely pay back your auto loan. A bad credit score, on the other hand indicates that you haven’t been very responsible with debt in the past and may default on your monthly payments.

The higher your credit score is, the greater your chances are of getting approved for car financing. Your FICO credit score, which is what most lenders pull is a combination of the following factors.

  • Payment history: Payment history reveals how often you pay your bills on time. Even one missed or late payment can take a toll on your credit.
  • Length of credit history: The longer your credit history is, the better for your score. This is why you should keep old accounts open.
  • New credit: If you apply for new credit multiple times within a short period of time, your credit score might take a hit. Only apply for credit when you absolutely need it to limit hard inquires on your credit reports.
  • Credit mix: Credit mix refers to the different types of credit accounts you have open. These might include mortgages, auto loans, personal loans, and credit cards.

What is a Cosigner?

Now that we know why credit matters when you apply for a car loan, it’s time to dive deep into cosigners. Put simply, a cosigner is someone who partners with you on a car loan application to increase your chances of getting approved. If you buy a car with a cosigner and fail to make your monthly car payments, the cosigner will be responsible for them. They make it easier to get a car loan.

Ideally, the cosigner will have good to excellent credit and sufficient income as lenders will look at their credit history in addition to yours when deciding whether to approve you. A cosigner can be your spouse, child, parent, or close friend.

Pros and Cons of Buying a Car With a Cosigner

While a cosigner might seem like the best option if you need a car loan but have bad credit, it does come with some drawbacks to note. Here’s an overview of the pros and cons of buying a car with a cosigner.

Pros

  • Greater chances of loan approval: If you’re considered a high-risk borrower because of your credit or other factors, such as your debt or income, a cosigner can reduce a lender’s risk and boost your likelihood of locking in a car loan.
  • Easier to purchase a better car: Without a cosigner, you might have to forgo a new car and settle for an old car or a vehicle that doesn’t meet your needs. A cosigner can help you buy a newer car of your choice.

Cons

  • May tarnish your personal relationship: You might damage your relationship with the cosigner if you don’t repay your loan. This is because they’ll be responsible for making your payments.
  • Your credit can suffer: If you miss car loan payments or default on your auto loan altogether, your credit score will go down. Your cosigner’s credit will be negatively impacted as well.

When do you need a cosigner to buy a car?

One of the easiest ways to buy a car with no credit or poor credit is to find a cosigner. But sometimes, this isn’t an option and you’ll need a car loan without a cosigner. You might have trouble finding someone with good credit who is willing to take on the responsibility of a cosigner.

After all, many people are hesitant to become a cosigner because of the risk involved. They don’t always want to come up with the cash to cover your car loan payments if you default. Plus they might be worried their credit score will take a hit.

How to Get a Car Loan With Bad Credit and No Cosigner

Fortunately, you can get a bad credit auto loan without a cosigner, sometimes without a credit check. Here are some options to consider.

Auto Loans For Bad Credit

There are lenders who specialize in auto loans for bad credit and can help you lock in an auto loan without a cosigner. While eligibility criteria vary from lender to lender, most don’t look for a good credit score or have a high income requirement. Our top picks for bad credit auto loans include:

1. Auto Credit Express

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  • Minimum credit score: 400
  • Loan term: Up to 72 months
  • Accepts applicants with bad or no credit and even past bankruptcy
  • A+ BBB rating

2. Carvana

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  • Minimum credit score: 450
  • Loan term: 12 to 72 months
  • Quick application

3. CarsDirect

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  • Minimum credit score: none
  • Loan term: Up to 72 months
  • Connects you with dealers within 24 hours.
  • A+ BBB rating

4. car.Loan

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  • Minimum credit score: none
  • Loan term: Up to 72 months
  • All credit accepted. Lease, buy, or rent.
  • Same-day approval

5. myAutoLoan

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  • Minimum credit score: 575
  • Loan term: 24 to 84 months
  • A+ BBB rating

Save Up

Even though it’s easier said than done, saving up to buy a car in cash is ideal if you don’t have the best credit. Not only will it enable you to skip the car loan research and application process, you’ll be able to save hundreds or even thousands of dollars in interest and fees. Of course, this might not be an option if you need a car as soon as possible and can’t wait until you’ve accumulated enough in savings.

Choose a Less Expensive Car

While the brand new Mercedes SUV may be your top pick, it’s not a good choice if you have credit issues and are struggling to secure financing as you’ll need a larger loan. Instead, you should look for a reliable yet affordable vehicle that will cost you less and require a smaller loan.

It may make sense to explore used cars as these are generally cheaper and don’t depreciate as quickly as new cars. Plus used car loans are often thousands of dollars less than new car loans. You can always finance your dream car in the future when your credit and finances improve.

Increase Your Income

In addition to your credit, many lenders will consider your income as it shows them how easy it is for you to pay your debt. If you boost your income, you can reduce the risk you present to lenders. Even a small increase in income can position you as a more attractive borrower.

You can get a part-time job on the weekends or a side gig like food delivery or tutoring. If you work a full-time job, find out if you’re eligible for a raise in the near future.

Increase Your Down Payment

A down payment is the percentage of the total vehicle’s costs that you pay when you purchase it. On average, a down payment is anywhere between 10% and 20% of the purchase price and lowers your loan amount.

The more money you put down, the less you’ll have to finance and more likely you’ll get approved for a loan. A large down payment can also open the doors to a lower interest rate and more favorable loan terms. If possible, work to save up a big down payment of at least 20%. You might have to pick up a side job or find random gigs to do so.

See also: How Much Should I Put Down on a Car?

Build Your Credit

If you don’t have an established credit history because you’re young or an immigrant, for example, there are ways you can build it.  A student credit card might make sense if you’re a student. If you make on-time payments consistently, you’ll be able to build your credit report and eventually qualify for a good auto loan offer.

Secured credit cards are another suitable option, whether you’re a student or not. With a secured credit card, you’ll have to make a deposit, which you’ll receive once you pay off your account balance. Store credit cards are another option but usually come with lower credit limits and higher interest rates.

Shop Around

Not all lenders are created equal. If one lender rejects your application for a car loan, don’t give up. Other lenders who offer second chance auto loans or subprime car loans might have more lenient criteria and approve you. Take the time to compare multiple lenders who cater to car buyers with low credit scores.

In most cases, it’s easier to qualify for a personal loan and auto loan from a credit union or online lender than a traditional bank. These financial institutions are more likely to look past your poor credit history and active bankruptcies. They may give you a chance, especially if you’re a loyal customer.

Peer-to-Peer Lending

Peer-to-peer lending can allow you to secure car loan financing through individual investors that offers loans, rather than banks, credit unions, online lenders, and other traditional lenders.

These days, there are many peer-to-peer lending platforms you can use to create a profile and seek investors. Some platforms are designed for borrowers with fair credit, bad credit, or no credit.

Lending Assistance

There are several charities, religious institutions, and nonprofit organizations that might be able to help you buy a car without a cosigner or a low credit score. Many of them cater to low income buyers or first time buyers.

Keep in mind that your income may have to be below a certain threshold to qualify. While low-interest or no interest loans can be very beneficial, grants are ideal as you don’t have to pay them back. Don’t be afraid to seek lending assistance if your situation warrants it.

Dealer Financing

While dealer financing for new and used cars sometimes gets a bad reputation, it can be helpful if you’re a no credit or bad credit car shopper. If you go this route, however, don’t expect a good deal. You’ll likely receive loan offers with a higher interest rate. For this reason, dealer financing should be a last resort.

Furthermore, avoid buy here, pay here loans as they can take a serious toll on your finances and steer you into a cycle of debt. If you do opt for financing through car dealerships, you might want to look into refinance loans and refinance to a new loan down the road.

What should I look out for in a bad credit car loan?

If you decide to look for a bad credit auto loan, it’s in your best interest to choose the option with the lowest interest rate, smallest monthly payment, and shortest loan term you qualify for and can afford. Do the math and make sure you calculate the interest charges you’ll pay over the life of the loan.

You’ll also want to determine your overall cost of borrowing and factor in the cost of car insurance to hone in on the best deal. Furthermore, find out if there’s a prepayment penalty, especially if your goal is to pay off your car loan ahead of schedule.

Bottom Line

Bad credit auto loans without a cosigner or co buyer can turn your dream of owning a new (or used) car into a reality. But you have to do the heavy lifting and explore all your options to find the ideal one for your unique situation. Best of luck in your search for auto financing!

Anna Baluch
Meet the author

Anna Baluch is a freelance personal finance writer from Cleveland, OH. She enjoys helping people make smart financial decisions.