Quick Answer
If you have no credit, no savings, and no credit card, buying a car remains possible through alternative financing. Options include dealer financing, secured loans using collateral like a second car or life insurance, or family loans. APRs for subprime auto loans averaged 18.4% in 2013, well above standard rates. Only 38% of consumers with bad credit received auto loans that year, per Experian.
Updated July 2026
When Credit Cards Are Not Enough to Buy a Car
Many people assume credit cards are the default path to big purchases like a car. But what if you have no credit card? No savings? No credit history? Even then, a vehicle is not out of reach.
That’s the reality for millions of Americans in 2013. The Federal Reserve reported that nearly one in five adults had no credit file, meaning they lacked a FICO Score, a key metric used by lenders like Chase, Capital One, and SoFi to assess risk.
Without a FICO Score, traditional auto loans are nearly impossible. Credit bureaus like Experian, TransUnion, and Equifax don’t assign scores to people with no credit history. That means even if you want to borrow $20,000, lenders can’t evaluate you.
Still, options exist. Let’s look at how to move forward when credit cards, savings, and credit don’t cover the cost.
Key Takeaways
- Over 20% of Americans had no credit file in 2013, making traditional auto loans inaccessible (Federal Reserve).
- Subprime auto loan rates averaged 18.4% APR in 2013, according to the Consumer Financial Protection Bureau (CFPB) 2013 Credit Market Report.
- Only 38% of applicants with poor credit were approved for auto loans in 2013, per Experian’s Auto Insights 2013 report.
- Used car dealerships often offer in-house financing, even to those with no credit, though rates can exceed 25% NADAC 2013 report.
- Secured loans using collateral like a second car or life insurance cash value are viable, but carry risk of repossession or tax penalties IRS Publication 525.
- Family loans are common: 43% of adults in low-income households received financial help from relatives to buy a car CFPB 2013 Survey.
Why Credit Cards Don’t Work When You Have No Credit History
Credit cards are not a fallback for people with no credit. That’s because card issuers, like American Express, Discover, and Bank of America, use FICO Scores to approve applicants.
If you’ve never used a credit card, opened a loan, or paid a utility bill on time, Experian won’t have a record of you. That means your score is unreported. You’re not “bad”, you’re invisible to the credit system.
Even if you have a card now, high balances or late payments can hurt your FICO Score. A score below 580 is considered subprime. Borrowers in that range face steep interest rates, even if they qualify.
According to the CFPB, 62% of auto loans in 2013 went to borrowers with FICO Scores above 660. That leaves just 38% for those below 660. And of those, many were denied outright.
Used Car Dealerships: Financing Without a Credit History
Many used car dealerships offer in-house financing. Unlike banks, they don’t always require a credit check. Instead, they may ask for a down payment, proof of income, or a co-signer.
For example, a dealership like CarMax or AutoNation might accept a $500 down payment and a $200 monthly payment for a 2012 Honda Civic. They don’t need your FICO Score. But they will charge you more.
Why? Because they’re taking on higher risk. In 2013, the average APR for in-house auto loans was 22.3%, up from 12.1% for prime borrowers, according to the Federal Reserve’s 2013 Credit Market Report.
Some dealers even accept payments weekly. That’s a burden for low-income buyers, but it’s an option when monthly payments are too high.
Caution: some dealerships use buy-here-pay-here models that can lead to repossession if you miss a single payment. The CFPB warned in 2013 that nearly 1 in 6 of these loans ended in repossession within 18 months.
Consider this: a $12,000 car financed at 22.3% APR over 48 months results in total payments of $16,848. That’s $4,848 in interest alone. Compare that to a 6.7% rate on a prime loan, total interest would be under $1,800. The cost difference is stark.
Secured Loans: Using Collateral to Get a Car
Collateral is an asset you pledge as security. If you don’t repay the loan, the lender keeps it.
Possible collateral includes:
- A second car (even a beater)
- Life insurance with cash value (like a whole life policy)
- Stocks or bonds
- Real estate (via a second mortgage)
For example, if you have a $5,000 life insurance policy with a cash value, you might borrow $3,000 against it. The insurer, like MetLife or Prudential, will lend it. Interest rates vary, but they’re often below 10%.
But there’s a catch. If you default, the insurer can take the cash value. And if you’re under 59½, withdrawing from a life insurance policy may trigger a taxable event. The IRS says you must report gains as income.
Second mortgages are another option, but risky. The average interest rate on a second mortgage in 2013 was 8.2% (Federal Reserve). But if you lose your job and can’t pay, the lender can foreclose on your home.
For instance, if you take a $15,000 second mortgage at 8.2% over 5 years, your monthly payment would be about $308. Total payments: $18,480. That’s $3,480 in interest. While lower than buy-here-pay-here, it still adds up, especially if you can’t afford a home loss.
Family and Friends: The Hidden Safety Net
Family loans are the most common alternative for people with no credit. The CFPB found that 43% of low-income adults received financial help from relatives to buy a car.
But it’s not always smooth. A 2013 study by the Urban Institute found that 1 in 5 family loans led to strained relationships, especially when payments were missed.
Best practice? Write a simple agreement. Include:
- The loan amount ($5,000, $7,000, etc.)
- Repayment schedule (e.g., $200/month for 24 months)
- Interest rate (if any, some families charge 0%)
- Penalties for late payment
Put it in writing. Even a handwritten note helps. It shows good faith.
Another option: gifts. If you’re under 59, gifts from parents are tax-free up to $13,000 per person per year, per the IRS Publication 525. That’s enough for a down payment on a used car.
If you have a 620 FICO score and need about $8,000 to buy a 2011 sedan, you’re in a tough spot. You qualify with a dealer who charges 22.3% APR, but that means $1,218 in interest over 4 years, not counting the down payment. A family loan at 3% APR would cost only $480 in interest. The trade-off? Your family’s trust.
How Long Does It Take to Build Credit?
Time can solve the no-credit problem. FICO Scores improve when you show responsibility, like paying bills on time and keeping debt low.
Experian’s 2013 report found that borrowers who paid all bills on time for 18 months saw their FICO Scores rise by an average of 35 points. That’s enough to move from “subprime” to “near-prime.”
But it takes time. In one case, a 23-year-old in Atlanta started with no credit. She opened a secured credit card with a $500 deposit through Chase. Over 2 years, she paid it off monthly. By 2015, her score was 680.
She didn’t qualify for a car loan in 2013. But by 2015, she did. The key? Consistency.
That said: if you’re already behind on rent, have a recent bankruptcy, or are facing eviction, no financing option will help. Lenders see those as red flags. This guide won’t work for someone with a history of delinquent payments or legal debt.
Is a Car Loan from a Credit Union an Option?
Yes, but rarely for people with no credit. Credit unions like PenFed or Alaska USA often offer lower rates than banks. But they still require membership and credit checks.
Some credit unions offer “credit builder” loans. These are small loans (e.g., $500) with low interest. You make payments over 12 months. Once paid, you get the money back. The credit union reports your payments to Experian, helping you build a history.
But you can’t use it to buy a car directly. It’s a stepping stone.
Comparison of Financing Options (2013)
| Financing Option | Down Payment Required | Average APR | Approval Rate (2013) | Risk of Repossession |
|---|---|---|---|---|
| Used car dealer (in-house) | $500–$1,500 | 22.3% | 47% | High (1 in 6 repossession rate) |
| Secured loan (life insurance) | None (loan against cash value) | 6.5%–9.2% | 31% | Medium (loss of cash value) |
| Family loan | $1,000–$3,000 | 0%–5% | 89% | Low (but relational risk) |
| Second mortgage | $1,000–$5,000 | 8.2% | 28% | Very high (home foreclosure) |
| FICO Score 660+ | $2,000–$5,000 | 6.7%–12.1% | 62% | Low |
Frequently Asked Questions
Can I get a car loan with no credit history?
Yes, but only through alternative lenders like used car dealerships or secured lenders. Traditional banks require a FICO Score, which you won’t have if you’ve never used credit.
Do credit unions offer loans to people with no credit?
Not usually. Most credit unions require membership and a credit check. However, some offer credit builder loans to help you start building a score.
What is the average APR for a car loan with bad credit?
In 2013, subprime auto loans averaged 18.4% APR, according to the CFPB’s 2013 Credit Market Report.
Can I use life insurance as collateral for a car loan?
Yes. Many insurers, like MetLife and Prudential, offer loans against cash value. But you may owe taxes if you withdraw more than your basis. The IRS Publication 525 outlines the rules.
How long does it take to get approved for a car loan with no credit?
Some dealerships approve buyers in under 24 hours. But approval isn’t guaranteed. In 2013, only 38% of applicants with poor credit were approved, per Experian 2013 report.
Are family loans a safe way to buy a car?
They can be. But 1 in 5 family loans cause tension. Always write a simple agreement. Include amount, repayment terms, and penalties for late payments.
Can I use a second mortgage to buy a car?
Yes, but it’s risky. The average 2013 rate was 8.2% (Federal Reserve). But if you default, you could lose your home.
What’s the best way to build credit fast?
Open a secured credit card with a small deposit (e.g., $500). Pay it off monthly. Report it to Experian. After 12–18 months, your score should improve.
Is it worth paying 25% APR for a car with no credit?
Only if you need it for work. The CFPB says 80% of drivers need a car to reach their jobs. But that cost is high. Try saving first or using a family loan before accepting a 25% APR.
Do credit cards help if I have no credit?
No. Credit cards are for people with credit. If you have no history, card issuers won’t approve you. Focus on secured loans or alternative lenders instead.
