Is it possible to get a car loan and buy a car with no credit?

The answer? Yes, under some conditions. Let’s explain.

It is a common situation, especially with young people who have never had a loan, never had credit cards, or never borrowed money for a car. Without a history of prior loans and payments, there is no credit history and no credit score, which is the number that represents credit rating.

In fact it is not quite sufficient to simply have a good credit score to get a car loan — or any loan. You may also need to have an established steady income (a job) and no excessive debts. You should have no recent bankruptcies or auto repossessions, which you wouldn’t be likely to have anyway if you have no credit.

So how is it possible to buy a car with a loan when you have no credit record and no credit score?

Buying a car with no credit is only possible if you pay cash, or if you get a loan from family or friends — or if you have someone who can co-sign with you on a loan. Having a co-signer is the most common way that most people buy a car with no credit.

A co-signer is not a co-owner. The loan is in both names but the car’s title is only in the name of the primary borrower (unless he wants both names on the title, which is typical for a husband and wife). Only if the primary borrower defaults (misses payments, or stops payments) does the co-signer take over. Even then, the co-signer only makes payments. The car still belongs to the primary borrower, even though the co-signer pays. The co-signer assumes no owership or equity in the car, even if they made most of the payments.

It is also important to know that both the borrower’s and co-signer’s credit are affected negatively if neither can make payments and the car is repossessed.

If you have no credit, having a co-signer on your car loan is a great way to build credit and establish a positive credit history for the next time you need a loan to buy a car.  Just make sure you make all payments on time and don’t miss payments. It also helps to get two or three credit cards or department store cards but don’t apply for them all at the same time. Spread out your applications over a period of three months or more. Charge to the cards frequently. Pay off most of your balance each month.  Make payments on time and keep low (but not zero) balances.

If you want to buy a car with no credit, there are some solutions, the best of which is to have a co-signer. Without a co-signer, you are very limited in your options. Make sure your co-signer has a good credit score or you’ll be turned down. Your co-signer can get his/her most recent credit score online.

Try a reputable online car loan company such as CarsDirect that specializes in providing car loans to people with no credit or poor credit.

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