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Auto Loans with No Credit: 5 Tips for First-Time Buyers

Updated: Nov 24, 2022

How to Get Your First Auto Loan with No Credit History

Getting approved for your first auto loan can seem intimidating. It is easy to feel overwhelmed when such a financial decision can impact your life and finances for years to come. Follow our 5 tips for first-time buyers to make sure you make the right decisions when purchasing your next (or first) vehicle.

1. Understand Your Credit Score

How to get an auto loan with no credit

In the world of finance, the credit score is king. It represents your buying power, how appealing you are to banks, and is the sum of all your past credit history on record. Your credit score is a numerical rating usually between 400-800. The number is based on the reports on your credit history such as payments (late and on time), debts, and past charge-offs.

The first step to any large financial decision is understanding your credit score and history. Going into the dealer blind can leave you at a disadvantage in negotiations and harm your score through multiple “pulls” by lenders, Everyone is entitled to a free credit history report once a year from each of the major reporting bureaus (Trans Union, Experian, Equifax). The easiest way is to request your reports from all three bureaus at

Learn more about Understanding Your Credit Score

2. Know your budget

How to Budget for an Auto Loan

When purchasing a vehicle, budgeting is crucial. If you do not plan ahead you can end up with a high payment which could result in you defaulting on the loan and damaging your credit. Nerdwallet recommends spending less than 10% of your monthly income on a car payment and less than 20% overall on vehicle expenses (gas, insurance, maintenance.). For example, if you make $2500 per month you should aim for a payment of $250/mo or less. The average car payment in Ohio is $335 for used vehicles and $535 for new vehicles.

It is recommended you compile your monthly income and expenses before planning your budget. Use our Free Auto Loan Calculator to estimate your payments based on term, interest, and money down.

3. Plan ahead

The long term cost of an auto loan

The monthly and upfront cost of your vehicle may be the most pressing factors but they are not all the matters. The cost of your vehicle is also determined by the length of the loan term. The longer the loan is financed the more money you will pay in interest. Auto loans usually range from 36 to 72 months with the most common term being 60 months (5 years). $10,000 financed for 5 years should come to a payment of about $200.

Another factor to consider is the condition of the vehicle when buying pre-owned. How many miles does it have? Any existing problems? How long will it last? What might I spend on repairs? It is important to do your research when purchasing a used vehicle. Another thing to look out for is the vehicle’s warranty. All new cars and most certified pre-owned vehicles have some sort of warranty protecting various parts of the vehicle. If there is a mechanical malfunction or defect that is covered under your warranty, you will be able to get it repaired for reduced or no cost, depending on the terms of your warranty.

4. New or used?

Should I buy new or used for my first car?

Should you buy new or used? Most people jump at the idea of a car fresh of the line with that new car smell, but it isn’t always the best decision financially. While people who purchase new cars can enjoy lower interest rates and special incentives there is a reason it is recommended to avoid new cars in most situations. The problem with new vehicles is depreciation, once a car gets its first owner it will see a large drop in value, and depending on the amount put down or vehicle traded in this can give you negative equity in your loan. However. For the right terms and price, a new car can be a good option, especially if you plan on keeping it for a very long time.

Used and certified pre-owned vehicles may have some ware, no warranty, and often come with higher interest rates but they will have a much better chance of retaining their value when being sold to a second or third owner than it would when going from new to pre-owned. Most financial advisors would recommend finding a used vehicle with low miles rather than a brand new vehicle.

5. Increase your chances

If you are not quite ready for that auto loan or are having trouble getting approved for the terms or the vehicle that you want, there are some options to increase your buying power.

Use a Cosigner - a cosigner is when a second individual sign for your vehicle with you and will be equally responsible for the loan terms. Both you and your cosigner will receive credit reports for the loan and will be equal owners in the eyes of the bank. A cosigner can greatly improve your chances of getting approved for better terms, depending on the singer’s credit.

Down Payment or Trade - Using a down payment or the trade value of a vehicle you already own on your new loan will not only lower your payment but it can help you get approved for a more expensive vehicle.

Build Credit - A cheaper car, another type of loan, or to a lesser effect, credit cards, can help you build your credit before you try to get approved for your dream car.

An Auto loan is one of the fastest ways to build credit! Find out if you qualify with our 3-minute application.