Getting a Car Loan With no Credit History: Is It Possible?


Getting a Car Loan With no Credit History

For most Canadians, at some point in their lives, they’re going to want to buy a car. Most Canadians however, don’t have the funds to pay cash in full for a car upfront, causing them to apply for financing. Getting financing on a car means finding a bank/lender that is willing to loan you the money to cover the cost of a vehicle. Lenders decide who is eligible for financing based on a person’s credit score/history. A person with a good credit score has paid their bills in full and on time in the past and is seen by the lenders as a responsible borrower. But what if the borrower has never used credit and therefore has no credit history? How is the lender supposed to decide whether or not to approve the person for financing? In this article, we’ll answer that and talk about how to get a car loan with no credit history. 

man signing car contract in a dealership

Three Steps to Getting a Car Loan With No Credit History

Having no credit history while trying to get a car loan requires a bit more work compared to someone who can just get their credit report from a company like Equifax or TransUnion. For anyone who has no credit history, you’ll want to follow these four steps:

1. Retrieve important documents. Since you don’t have a credit report to show lenders, you’ll need to provide other documents to show your creditworthiness. 

Proof of employment/employment history: This is required so lenders can see whether you’ve been generating income consistently. They’ll also want to see your pay stubs so they can decide whether you have enough income to be able to afford to pay them back for a loan.

Living history: It’s important that you can also provide all of your past living situations so they can see that you were able to maintain your rental costs.

Bill payments: You’ll also want to be able to provide any recurring bill payments you make. Whether it be paying for internet or cell phone bills, if the lender can see you’re constantly paying your bills on time it will lead them to believe that you’re a responsible borrower. 

Drivers license: The last thing you’ll want to be able to provide is a valid driver's license. 

2. Consider Using a Co-signer. Finding a close friend or family member who’s willing to act as a co-signer for you is a great way to improve your chances of being approved for a car loan. Finding a co-signer who has a good credit score themselves gives the lender more confidence in giving the loan because if you’re unable to make payments on that loan, the responsibility would be on the co-signer. This is the absolute worst-case scenario and it’s important you don’t let it get to that point as you’d be putting the co-signer in a bad place. If you do decide to get a co-signer you need to be 100% sure you can maintain payments on the loan and the co-signer is aware of the potential implications if you fail to. 

3. Start Building Your Credit NOW. Just because you haven’t had any credit history up to this point doesn’t mean you can’t apply for a credit card today to slowly start building your credit. Find a basic credit card to apply for and begin to make small purchases with it. If you can show lenders that you can pay back even small amounts for grocery purchases or gas it can improve your odds of a car loan approval. 

4. Be Willing to Make a Down Payment. Another way to increase the likelihood of approval is if you’re able to make a down payment. The reason this helps your chances of approval is that by making a down payment, you’re asking the lender for less money. The less money you need from a lender, the more comfortable they’ll be giving the loan. This may not be possible in your situation but it is something to consider, even if you can only afford a $1500 down payment.

Where Should You Get a Car Loan With No Credit?

Car Loans Canada has helped thousands of Canadians with both no credit and bad credit get approved for financing. If you’re in a situation where you have bad credit or no credit at all, fill out our short application and get approved for a car loan today!

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