Loans, Taxes, and Law

First Time Car Buyer Loan: Everything You Need to Know

Buying your first car is an exciting milestone, but getting approved for an auto loan can seem daunting if you have limited or no credit history. First time car buyer loans are designed to help in this situation.

In this comprehensive guide, we’ll explain everything you need to know as a first time car buyer, from loan programs and requirements to interest rates and tips for getting approved.

What is a First Time Car Buyer Loan?

A first time car buyer loan is an auto financing program designed to help people with little or no credit history qualify for a loan to purchase their first car.

These special programs offered by lenders have more flexible credit requirements than traditional auto loans. This gives first time buyers a better chance of getting approved.

First time buyer loans allow drivers to build credit through on-time payments while getting the transportation they need. They provide an entry point to auto financing for those with no prior experience.

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Who is Eligible for First Time Buyer Loans?

First time buyer loan programs are aimed at those with limited credit histories. This includes:

  • True first time buyers who have never had an auto loan or credit history before
  • Young adults/students buying a first car
  • New immigrants with no U.S. credit history
  • Anyone with a thin credit file or low credit score

Lenders determine eligibility primarily based on not having previous auto financing experience. However, minimum credit scores, income, and age requirements may also apply.

Where Can You Get First Time Buyer Loans?

Many major lenders don’t openly advertise special programs for first time buyers. But various financial institutions offer options if you look in the right places:

Credit Unions

Credit unions are a great starting point. Many have specific first time buyer programs and auto loans for those looking to establish credit. You’ll need to become a member first.

Online Lenders

Major online retailers like Carvana and Vroom work with networks of lenders. This gives them access to financing options suited for first time buyers, including bad credit loans.

Marketplace Lenders

Aggregator sites like match borrowers to lenders likely to approve them. This includes subprime lenders that work with first time buyers.

Captive Lenders

Captive lenders are financing arms of automakers (Toyota Financial, GM Financial etc.). They may offer special incentives or discounted interest rates to first buyers.


Large national banks may have first time buyer assistance programs. Community banks and local banks are also worth checking into.

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How Do First Time Car Buyer Loans Work?

These loan programs allow first time buyers to get approved for financing more easily and build credit. Here are some key details on how they work:

  • Special Credit Requirements – First time buyer loans often don’t require an established credit history. Those with no credit can qualify based on income/employment alone in some cases. Minimum scores when required may be quite low, such as 550.
  • Higher Interest Rates – Borrowers will pay a higher interest rate compared to those with good credit, often falling into the subprime range. This accounts for the increased risk lenders take on. Rates can be negotiated down after a history of on-time payments.
  • Smaller Loan Amounts – Loan amounts for first time buyers may be capped lower, $20,000 or less in some cases. Lower loan amounts reduce the lender’s risk.
  • Shorter Terms – Loan repayment terms of 12-36 months are more common with first time buyer loans, versus up to 72 months for conventional loans. This also limits the lender’s risk exposure.
  • Down Payment Required – Many programs for first timers require a 10-20% down payment or trade-in to reduce the financed amount.
  • High Fees – Expect to pay an origination fee for underwriting and processing costs. Rates and fees are higher overall compared to those with established credit.
  • Chance to Build Credit – The goal is to prove you can manage monthly payments responsibly. This in turn builds your credit history and score so you can refinance at better rates.

Make sure to compare multiple lenders to get the best possible terms on your first auto loan.

Requirements for First Time Car Buyer Loans

While eligibility criteria varies between lenders, here are some typical requirements for first time buyer auto loans:

  • Minimum age, usually 18 years old
  • Gross monthly income minimum, often $1,500 – $2,000
  • Steady employment, typically 3-6 months with current employer
  • Down payment, usually 10-20% of vehicle purchase price
  • Co-signer if credit score is very low or no credit exists
  • Documentation verifying income, employment, and ID

The minimum credit score required can range widely depending on the lender, from 550 up to the low 600s. Many lenders also limit maximum mileage and vehicle age, for example no more than 80,000 miles or 5-6 years old.

In some cases, meeting one primary requirement, like having a qualified co-signer or putting down 20% or more, can make other requirements more flexible.

What is the Loan Process for First Time Car Buyers?

Follow these steps when applying for your first auto loan:

1. Check your credit

Request a free copy of your credit report so you understand what lenders will see. Dispute any errors that could impact your loan eligibility. Also check your credit score so you know the general range of rates to expect.

2. Calculate affordability

Consider your budget to determine a reasonable payment amount and loan terms you can manage. Adjust the loan amount, down payment, and loan term to find affordable options.

3. Gather required documents

Have needed documents ready to submit, such as pay stubs, W-2s, driver’s license, proof of address, etc. Specific requirements vary by lender.

4. Apply for pre-approval

Submitting loan applications to multiple lenders will allow you to compare rates and terms you qualify for. Focus on applying within a 14 day period to minimize credit score impact.

5. Compare loan offers

Once you receive pre-approvals, compare the loan amounts, interest rates, fees, and lender reputation. Make sure you understand the full terms before accepting an offer.

6. Finalize loan at dealership

If purchasing from a dealership, bring your pre-approval offer to the finance office. They may be able to beat the rate. Review all final paperwork carefully before signing.

What Interest Rates Can First Time Buyers Expect?

As a first time car buyer, you will pay a higher interest rate than well-established borrowers. Here are some averages:

  • New car – 10-14% APR for first time buyers with good credit scores of 690+; 16%+ for those under 660. The average new car loan rate overall is about 6%.
  • Used car – 12-18% APR for buyers with scores above 660; 20%+ for those below 620. The average used car loan rate is just over 9%.
  • No credit – Expect rates of 15-25% if you have an insufficient credit history. Some subprime lenders may approve loans for first timers with no credit check but very high rates.

Many factors determine your specific interest rate, especially your credit score. Also important are your debt-to-income ratio, loan amount, loan term length, etc.

Aim for the lowest rate you qualify for without having to extend the loan term excessively or take out a larger loan.

Tips for First Time Car Buyer Loans

Here are some tips to boost your chances of getting approved and receiving the best possible interest rate:

  • Shop around – Compare loan offers from multiple types of lenders, including banks, credit unions, and online lenders. Pre-approval is recommended.
  • Know your credit – Review your credit reports and focus on improving your score before applying. Higher scores unlock better rates.
  • Lower your DTI – Your debt-to-income ratio is key. Reduce monthly debts and secure a strong down payment to lower your DTI.
  • Add a cosigner – Ask a family member with good credit to cosign the loan with you to make approval easier and rates lower.
  • Reduce loan term – Opt for a 24 or 36 month repayment term instead of 48 or 60 months to get better rates as a first time buyer.
  • Buy used – Consider buying a used vehicle to reduce the amount you have to finance. New cars come with higher rates.
  • Make a large down payment – 20% or more down allows lenders to loan you less money, lowering their risk.
  • Ask about discounts – Inquire with lenders about any special discounts for first time buyers or rate reductions for setting up autopay.

When Does Refinancing Make Sense for First Time Buyers?

If you receive loan approval but at a high interest rate, refinancing in the future may save you money. Here are some tips on refinancing your first auto loan:

  • Wait at least 6 months, or ideally 12 months, before refinancing to show a history of on-time payments.
  • Refinance once your credit score has improved, above 680 if possible. This unlocks better rates. Check your score every 6 months.
  • Calculate the costs to refinance to make sure monthly savings exceed fees to refi. Online calculators can help determine this.
  • Reduce your rate by at least 2 percentage points for worthwhile refinance savings. Receive rate quotes before applying to verify savings.
  • Consider extending your loan term slightly, such as from 36 to 48 months, if needed to make payments more affordable.
  • Avoid refinancing into a significantly longer-term loan, as the increased interest costs often outweigh any rate reduction.

Bottom Line

Buying your first car is a big step. While getting approved for financing may seem intimidating as a first time buyer, special auto loan programs exist to help you. Following the guidance above will set you on the path to getting approved while securing the best interest rate possible.


Who qualifies as a first time car buyer?

First time buyer status relates to never having an auto loan in your name previously. Your age and driving experience don’t determine whether you qualify. You can be a first time buyer at any age if you’ve never financed a car before.

Where can I get a first time car buyer loan with bad credit?

Lenders that specialize in bad credit auto loans like Auto Credit Express,, and are good options for first time buyers with poor credit. They offer higher-risk loans with more flexible credit requirements.

How can I get a first time car buyer loan with no credit?

Those with no credit history should apply for pre-approval with subprime lenders and those that do not require credit checks. Providing significant income documentation is key. Having a qualified co-signer on the loan can also help get approved.

Do dealerships offer special first time buyer programs?

Some dealerships and manufacturers offer assistance to first time buyers, but these programs are becoming less common. Captive lenders connected to car brands are one place to ask about special financing offers or incentives for first time buyers. Credit unions also have relationships with specific dealers to provide first time buyer financing.

What down payment is required for first time car buyer loans?

A 10-20% down payment or trade-in is recommended for first timers to reduce the amount financed. Specific minimum down payment requirements will depend on the lender. Coming up with 20% down shows you are financially committed and reduces risk for lenders.

Brian Morgan
Brian Morgan is an expert in loans and financial regulations. With a wealth of experience, he's a go-to authority in demystifying complex financial concepts. As a prolific writer, Brian provides valuable insights, making him a trusted guide in the ever-evolving landscape of finance.

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