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First-time car buyer programs offer auto loans to drivers with poor or no credit history, allowing them to qualify for financing and build their credit scores
For first-time car buyers, the auto loan process can be complicated and daunting. We at the MarketWatch Guides Team will explain first-time car buyer programs and who qualifies for them. We’ll also walk you through the steps you can take to get loan approval, and we’ll offer two suggestions for where to start your research when looking for the best auto loan rates.
Key Takeaways:
| Lending Partner | Loan Terms | Min. APR | Min. Credit Score | See More |
|---|---|---|---|---|
| 48-84 Months | 5.29% | 550 | ||
| 12-84 Months | 5.24% | 620 | ||
| 36-84 Months | 4.99% | 640 | ||
| 12-84 Months | 0% | 300 | ||
| 12-84 Months | 5.49% | 575 |
| Lending Partner | Loan Terms | Min. APR | Min. Credit Score | See More |
|---|---|---|---|---|
| 48-84 Months | 5.29% | 550 | ||
| 12-84 Months | 5.24% | 620 | ||
| 36-84 Months | 4.99% | 640 | ||
| 12-84 Months | 0% | 300 | ||
| 12-84 Months | 5.49% | 575 |
Learn more about our methodology and editorial guidelines.
Some lenders and car manufacturers offer first-time car buyer programs which help drivers who don’t usually qualify for auto loans buy their first vehicles. People who have poor credit or no credit history at all often use these programs to help build credit or finance their vehicles. These programs often allow for smaller down payments, lower monthly car payments, and interest rates.
First-time-car-buyer programs are generally limited to people who have never financed vehicles. Most people who use these programs have never owned cars and have either low credit scores or no credit history. College students and recent college graduates are ideal candidates for first-time-buyer programs.
Though some of these programs have more flexible requirements when it comes to credit history, they may have certain strict qualifications. Some require you to make a down payment, while others set a minimum monthly income.
Many lenders don’t advertise their first-time car-buying programs, so you’ll need to contact the institution you’re interested in to see if it offers one. That said, here are some places to start your search:
Credit unions require you to be a member before you can get a car loan, but membership requirements are usually easy to meet. Many credit unions offer credit-building programs, some of which are designed to make the new or used car-buying process more accessible to those with poor credit or no credit.
Companies like Carvana and CarMax work with a variety of lenders, many of which offer auto loan options and other financing choices to first-time buyers. Some of these lenders offer bad-credit car loans, which have more flexible requirements but generally come with higher interest rates.
Marketplace lenders, such as myAutoloan, help match first-time car buyers with lenders that are more likely to approve their loan applications. These sites allow car buyers to compare multiple providers at once.
A captive lender is the financing arm of a car manufacturer. If you’re considering buying a new vehicle from a dealership, that automaker’s captive lender will likely offer you a lower interest rate. Some offer cash rebates instead of low-APR deals, often in the form of a reduction in the car’s total cost.
If you’ve found a first-time-car-buyer program, the process for applying for a loan is essentially the same as for someone with extensive credit history. In the sections below, we’ll detail your best steps when looking to get your first car loan.
Before beginning to consider any vehicle financing options, you need to figure out how much car you can afford. Knowing what monthly payments you can make can allow you to properly choose offers that work best for you.
Also, deciding whether you want a new or used vehicle is an important decision when getting a loan. New cars tend to come with the lowest auto loan rates while used cars usually have cheaper purchase prices with higher interest. Using an auto loan calculator can help you experiment with interest rates, loan time lengths and down payments to find loan terms that are suitable for your needs.
Most lenders have online application processes and require you to provide certain information, including:
Applying for preapproved car loan allows you to get loan offers so you can see what you qualify for. Especially if you’re a first time car buyer, it will allow you to understand what terms to expect and can give you negotiating room with dealers. It also provides you with time for comparing lenders as most preapprovals last around 30 to 60 days.
Keep in mind that each preapproval requires a hard credit check, meaning it can lower your credit score. Credit bureaus recognize that most consumers want to compare rates from providers, so try to apply for preapprovals within a two-week period to avoid multiple hits to your credit.
Getting plenty of loan offers from multiple different lenders will help you find the best deals. While car dealerships are the traditional option, many credit unions and online lenders are able to work with first time car buyers, even if you have low or no credit. Comparing offers from different types of auto loan providers will help you find the terms that work for you.
* The calculators used on this website are being provided for educational purposes only. Data will not be collected or stored. The results are estimates based on information you provide and may not reflect actual pricing of your quote.
Auto loan interest rates for first-time car buyers tend to be similar to those with bad credit which can range from 11.72% to 21.38% on average. Your credit score is the leading factor that determines your interest rates and differs widely depending on the category you fall into. The rates you get also depend on whether you’re buying a new car or a used one.
The graphic below shows the average auto loan rates by credit score for new and used vehicles according to Experian’s most recent Automotive Finance Market report:
Each borrower gets a personalized auto loan rate. Lenders weigh several factors to get these rates, including the following:
Loan approval can be tricky for first-time car buyers. To help you through this process, we have provided some tips you can use to increase your chances of getting approved.
Knowing exactly what lenders are seeing when they check your credit helps you avoid surprises. You can see both your credit score — which will give you a decent idea of what interest rates to expect — and what affected your score.
For example, if you have a number of late payments on credit cards or other debt, you can raise your credit score by making more on-time payments. Also, you can check for errors and file a dispute to get your credit report corrected.
Adding a cosigner or co-borrower with good credit makes you less of a risk for lenders, so it can help you get approved for a loan. A cosigner agrees to make your loan payments if you can’t, but they don’t have ownership of your car. A co-borrower has equal ownership in the vehicle and shares the responsibility for paying the loan off. Both a cosigner and a co-borrower can take a hit to their credit score if loan payments are late or missed.
To find the best auto loan rates, compare rates from a few lenders. You can avoid damaging your credit while you shop around by getting prequalified, which doesn’t require a hard credit check. However, getting preapproved for financing will give you a better idea of the loan amounts and rates you qualify for.
Consider how much you can put toward a monthly car payment, and then find a car within that price range. If you don’t borrow much money, lenders will consider you less of a risk since they’ll have less to lose if you don’t pay your loan off. This may require you to look for a cheaper vehicle or a used car.
Having a larger down payment will reduce the amount you need to borrow. It will also make your LTV ratio lower, which could get you a lower interest rate.
Though first-time car buyers can have a hard time getting approved for loans, many lenders and financial institutions offer programs to help. Credit unions often have programs to help people with low credit scores or no credit at all establish credit and make them less risky to lenders.
First-time-buyer programs may have lower requirements for credit scores but higher requirements for other things, such as a down payment or monthly income.
| Lending Partner | Loan Terms | Min. APR | Min. Credit Score | See More |
|---|---|---|---|---|
| 48-84 Months | 5.29% | 550 | ||
| 12-84 Months | 5.24% | 620 | ||
| 36-84 Months | 4.99% | 640 | ||
| 12-84 Months | 0% | 300 | ||
| 12-84 Months | 5.49% | 575 |
| Lending Partner | Loan Terms | Min. APR | Min. Credit Score | See More |
|---|---|---|---|---|
| 48-84 Months | 5.29% | 550 | ||
| 12-84 Months | 5.24% | 620 | ||
| 36-84 Months | 4.99% | 640 | ||
| 12-84 Months | 0% | 300 | ||
| 12-84 Months | 5.49% | 575 |
We found that myAutoloan and Auto Credit Express offer great loan options for first-time car buyers. They both have affordable rates and low income and credit requirements, making it easier to get financing. However, we believe the best way to find affordable auto loan rates is to compare a few lenders’ offers.
Starting APR: 4.49%
Loan amounts: $5,000 minimum loan amount
Loan terms: 24 to 84 months
Availability: 48 states (not available in Alaska or Hawaii)
Minimum credit score: 575
Instead of directly providing auto loans, myAutoloan is an online marketplace that helps borrowers compare multiple lenders at the same time. The company is an especially good option for those with lower credit scores, as it has a minimum FICO® score requirement of 575. In addition, myAutoloan offers some of the lowest interest rates in the industry.
Read more: myAutoloan review
Starting APR: Varies
Loan amounts: Varies
Loan terms: Varies
Availability: all 50 states
Minimum credit score: 400
Auto Credit Express specializes in providing car loans to people with bad credit. The auto loan broker offers a variety of loan products and works to connect drivers with lenders that match their needs. The company’s online car loan calculator helps first-time car buyers figure out how much they might be able to afford, and its car loan estimator helps potential borrowers learn what they might qualify for.
Read more: Auto Credit Express review
Here are some of the most frequently asked questions about first-time-car-buyer program loans:
If you have a low credit score or no credit history, some lenders will view you as a high-risk borrower and deny your loan application. This can make the car-buying process frustrating. We recommend researching if your bank or credit union offers a first-time-car-buyer or credit-establishing program.
Generally speaking, having a credit score of around 600 or higher gives you a good chance of getting approved for a car loan. However, you can increase your chances by getting a cosigner with excellent credit.
Experts recommend putting 10% to 20% down when purchasing a vehicle. The higher your down payment, the less you’ll need to finance. You should think about your budget, balancing what you want to pay each month with what you can reasonably afford.
As a first-time car buyer, you should be familiar with your credit score and history. You should also know how much you can spend on a car and where to find a first-time-buyer program if you don’t meet credit score requirements for an auto loan. If you’ve been approved for a loan, don’t be afraid to haggle with the dealer on the purchase price.
Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best auto loan companies. We collected data on dozens of loan providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the companies that scored the most points topping the list.
Here are the factors our ratings take into account:
Our credentials:
*Data accurate at time of publication.
If you have feedback or questions about this article, please email the MarketWatch Guides team at editors@marketwatchguides.
