How To Finance a Car with Bad Credit and No Cosigner?

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Being a car enthusiast myself, the craving for speed and independence, the pleasure of hearing the engine roar, and the power you feel while holding the steering is unimaginable. But how do you finance a car when you have bad credit? Can I get a bad credit car loan?

Automobile companies launch new vehicles or variants every month, with upgraded features and looks that make you turn. How many times have you seen a car and went—“Wow! It is gorgeous; I wish it were mine; I want to drive that.”

Well, owning a car is a dream for many people. Although with the luxury of financial stability or a surprisingly good credit score, it can be easier for some people to purchase a car. 

But what about people who don’t have sufficient funds for paying for a new car and a bad credit score, to begin with? What options do they have? If you are in the market for a bad credit auto loan, you are not alone. Learning how to finance a car can be tough. Paying a high-interest rate and monthly payments can make it unaffordable to buy a used car. Traditional lenders are looking for perfect credit if you want a new vehicle and a lower interest rate. Cosigner auto loans are an option and financial institutions look more favorably towards them. But who wants to ask a close friend or family member to cosign for you?

We will be discussing bad credit car loans and related information in this article. The questions that are being addressed are: 

  • How to get a car loan with bad credit?
  • Is it possible to obtain a car loan with a bad credit score and no cosigner? 
  • Why is a cosigner necessary if you have a bad credit history?

But before that, you need to decide what exact features and upsides are you looking for in a new or new-to-you car? Whether it is a beast that drives like fire or a decent sedan that shines brighter than the colors of sky, you must know what you need. 

Understand your Requirements

Before applying for an auto loan, there are a few things you must consider: 

  1. The essential features you are looking for in the car.
  2. The amount you can invest without a financial burden. 
  3. The expense of car insurance, accessories, safety items, fuel, and monthly servicing you can afford every year.
  4. Would you be able to bear a debt that huge at your present financial status?
How to Rent-to-Own A Home With Bad Credit

See: Best Credit Repair Companies in 2021 and What You Need To Know!

Assembling Funds 

The next step is to start figuring out what money (savings or monthly paycheck) you’re going to use for your new car and how much of it. Here are the options that you have to acquire a car: 

  • Financing: While also holding a considerable amount of money for the down payment. In this case, you can pay a lump sum amount as a down payment and get a loan for the rest.
  • In case you can’t afford the down payment, you can always apply for a zero down payment auto loan from banks, credit unions, or other potential auto loan lenders. 

Where to get an auto loan with bad credit?

Some lenders and dealerships are willing to provide car loans to borrowers with bad credit histories. It’s beneficial to consider all options before getting into the procedure of applying for a car loan. This way, you can find the best deals that go hand-in-hand with your financial status. 

Researching the application process, interest rates, different auto lenders, and other necessities of the lenders will save you time and energy in the process. The good news is the more you prepare for the process, the better chance you have of getting a potential lender to consider your financial situation and offer you monthly car payments. Subprime lenders will often consider other circumstances and do not just base their decision on your FICO score.

See: Ultimate DIY Credit Repair Guide for 2021: How To Repair Bad Credit Yourself

Captive Financing 

The captive financing companies are entirely owned subsidiaries of an automobile manufacturer or retailers. They provide financial assistance, loans, and deals for selling automobiles, which signifies that you can purchase and finance the car at the same place. 

They provide store credit card and full-scale banking services to their customers. Store credit cards offer benefits to its customers while shopping at specific stores or brands—it helps them to avail better offers, additional distributors, numerous rewards, and free shipping with every purchase.

Captive Financing is the best option for people with bad credit scores. Since they administer purchase & financing simultaneously, they are more than willing to provide loans to car buyers with bad credit histories. In addition, they offer lower interest rates and better loan terms.

Getting a loan with bad credit is plausible with Captive Financing as they get incentives by providing loans and selling their products. The risk involved is relatively low, so they are not hesitant to finance a person who would be denied at other lending institutions. 

Examples of captive financing companies are—General Motors Acceptance Corporation (Ally Financial), Toyota Financial Services, Ford Motor Credit Company, and American Honda Finance.

Dealer arranged Financing 

The kind of financing where the dealer organizes options for car loans from different lenders. The dealer sells these loans to banks or third-party financing organizations at a discount. Then they collect loan repayment from the borrower, so it is also known as indirect loan. However, the interest charges can add up on these types of loans. When you look at your dream car, it can be tempting to do this type of auto financing. But when you add in the cost of financing, and you see what you are paying for the car in the long run, their favorable terms do not look like a good idea.

Automobile dealers offer these loans to borrowers with bad credit. These dealers are actually mediators between the borrower and the lender. They charge for financial assistance and might give you higher interest rates so they can make more money.

However, choosing dealer-assisted financing helps you save a lot of time and effort. And if you need a ride, you are not in a position to look for the best deal.

Automobile dealers that provide car purchase financing are examples of dealer-arranged financing.

Approaching Banks and Credit Unions 

Applying for a car loan through a bank and credit union is similar to applying for any other loan. Getting a loan through a bank—you have connections with—might work. 

They may consider your relationship with them and overlook any derogatory marks on your credit history. Banks can approve your loan and consider you a potential borrower based on their experience with you in the past.

First, you need to apply for the loan, get a pre-approval from your bank and then show it to the dealership. After that, the loan repayment is made to the bank or the credit union directly, in monthly installments agreed at the time of agreement. 

You can also apply online by visiting various bank websites and searching for car loans.

See: How Does A Credit Builder Loan Help My Credit? Facts You Need To Know

Online Creditors 

Many organizations work entirely online and can provide loans for an automobile purchase swiftly. All you need is a laptop and internet connection to go along with the application procedure, verification, and loan approval.

With the advancement of technology, it’s easier to obtain a loan online but beware of cybercrimes and fraud. Thoroughly research the company before you apply for online loans.

Some examples of online lenders are—Auto Credit Express,, and

Charge off

How to Get Financed for a Car with Bad Credit?

Coveting a desirable car loan with bad credit can be a challenging task. Since most lenders use credit scores to determine the plausibility of investment returns, having a bad credit score degrades your chances. Therefore, you must check your credit rating before you start shopping. However, car shoppers who are prepared may get better terms because you are not walking into the situation without any information.

The lesser your credit score or late payments in your recent credit history, the more hesitant lenders are to approve your loan. However, if they are willing to give you a loan considering the risks, they would certainly charge you a higher interest rate over the life of the loan. 

Nonetheless, there are ways to improve the chances of your loan application approval: 

See: Raise Your Credit Score Quickly Without Applying For New Credit

Cognize your credit 

Request a free credit report from each credit bureau (you’re eligible for one report per year from every bureau) at, or check your Equifax and TransUnion credit report on Credit Karma.

Analyzing the reports can help you determine inaccuracies in your credit report and dispute them. Also, you can be aware of your credit score position and try to improve it with future payments. 

Settlement of past dues and clearing off your debts can improve your credit history significantly. It will also assist you with the loan approval. 

Down Payment Benefits 

A significant amount of money as a down payment can increase the chances of being financed for a car loan. It will substantially help in loan approval even with bad credit while reducing the interest rate significantly. 

Providing a considerable amount of down payment can also lower the number of monthly installments and reduce your debt. 

Higher down payments decrease the risk for creditors, which in turn works in your favor by making you a potential loan applicant. 

Pre-approval for Loan

Pre-approval of a loan shows that you are eligible for a loan up to a set amount. Potential lenders can check your credit history and financial information and notify you exactly how much loan they are willing to approve. 

This can enable you to estimate the price range you can go for and the amount you could afford to put as a down payment.

Get a Cosigner 

A cosigner is someone who is willing to apply for a loan with the borrower and is equally responsible for the repayment of the loan. In addition to this, if the borrower fails to repay, the cosigner would be accountable for the debt payment. 

Lenders suggest a person with a bad credit history should have a cosigner with a good credit score, as this reduces the risk of their loan payment returning to collapse.

How to Get a Loan with Bad Credit and no cosigner 

Applying for an auto loan with bad credit history is challenging, but doing it without a cosigner makes it more difficult. Creditors usually deny loans to applicants with bad credit history—being approved without a cosigner is almost unlikely. 

However, there are solutions for this issue as well: 

Special Finance Dealership

Special Finance dealerships associated with sub-prime lenders can be a good option for people with bad credit and no cosigner. 

They don’t focus on credit history and instead prefer to look at factors like income, residence, and employment. Credit history doesn’t matter if you can fulfill the above requirements. 

They have great deals and programs specifically designed for people with bad credit histories. It makes it easier to get financed without a cosigner. 

Put down a Bigger Amount as Down Payment 

A bigger down payment reduces the amount of loan requirement and is beneficial during loan approvals. Putting a lump sum amount as a down payment boosts your chances significantly, even without a cosigner.

Improve your Credit 

Rushing into anything is foolish, and a decision like borrowing a car loan is no different.

Paying off debt is not easy, so think and then decide. If you can wait a little longer for this commitment, you should try to improve your credit report. It will help you lower the amount of money you have to borrow, and you won’t need a cosigner either. 

It will open up better deals for you and get the loan application approved without a cosigner and lower interest rates. 

Compare before you choose 

Though it’s not easy to find a good deal with bad credit and no cosigner, many creditors would be willing to lend you money with higher interest rates. 

Compare the options and find the most suitable one for you. You might find a great deal if you research and compare the options available. 

See: Best Credit Repair Companies in 2021 and What You Need To Know!

When you neither have credit or cosigner 

Buy-Here-Pay-Here (BHPH) are Automobile Dealerships that provide both car and financing at the same place.

They are also referred to as no credit no cosigner dealerships, as they neither require a credit history nor a cosigner to give out car loan offers. The loan approval process at BHPH solely depends on your income. 

However, there are some issues related to this option—It limits your choices to the cars they have available and used vehicles only. In addition, the payments have to be settled in person at the dealership, and there’s no surety that they will notify the credit bureaus of this.

So, this would not improve your credit history either. Make sure you have all the information handy before making a deal.

See: Top 10 BEST Banks For Bad Credit and How To Get A Bank Account

Bottom Line 

An auto loan approval—with bad credit and no cosigner isn’t easy to find. But if you follow some general rules, it can be accomplished. 

The things you must consider are:

  • Avoid going over budget
  • Stick to your requirements 
  • Search and compare deals to find the most favorable one.
  • Understand your credit reports and try to improve them by settling your dues 
How To Finance a Car with Bad Credit and No Cosigner?

Getting a pre-approval can be beneficial to determine your loan amount and down payment. It will also help you decide the brand and model you can afford under your budget.

Other essential things to remember are—save money for a better down payment to avoid higher interest rates and higher loan amounts. Also, find dealerships that offer good deals and easier loan approval. 

If you can delay the purchase and improve your credit report while holding a significant amount of money for a down payment, then you might not require a cosigner at all.

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Tricia Snow

Tricia Snow has worked in the banking and financial services industry for over 20 years. She has helped 1000's of clients obtain the financing they needed to purchase their dream home or start their own business.

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