Can You Get a Car Loan With No Money Down?
You may already know that zero-down leases exist, but did you know zero-down loans are possible as well?
However, getting a loan with no money down may not be the smartest option.
Table of Contents
How Does a No Down Payment Work?
When you use an auto loan to finance your car purchase, you must pay for the price of the car as well as state taxes, registration fees, and dealership fees. If you do not make a down payment, then the fees are included in the total amount you're financing.
The issue is that cars depreciate in value the moment they are driven off the lot. If you finance a $30,000 vehicle with no money down, you could end up financing close to $34,000 with all fees considered. Owing more than your vehicle's worth means you are "upside-down" in the loan, and that carries a risk.
Benefits of Zero Down Car Financing
- Get the vehicle quicker. Since you do not need to come up with a lump sum for the down payment, you can obtain the vehicle quicker.
- Get a vehicle outside of your price range. Get a vehicle that you really want and would not otherwise be able to afford.
Drawbacks of Zero Down Car Financing
- There may be a catch. There are some reputable no-down financing offers, but many untrustworthy dealers offer "no-money-down" car loans at very high-interest rates.
- The total cost goes up. Without money down, the total cost of your loan will go up, and will often be more than the value of the vehicle. In hopes of keeping monthly costs down, a lot of people choose longer loans, but this again increases the total amount. Borrow with the shortest loan period you can afford.
- Added costs for repairs. An unreliable car can be a huge financial strain if you already took zero down financing and don't have the savings to pour into repairs.
What You Need to Get a Car with No Down Payment or Trade-In
If you trade in a vehicle, it's a lot easier to get no money down financing, because the value of the trade-in goes toward your new vehicle. However, it's still possible to have no down payment without a trade-in. Here's what you should have if you're looking for zero down car financing:
- A high credit score. You should be a well-qualified buyer with a credit score of 720 or higher if you're hoping to persuade a lender to waive your down payment without skyrocketing your interest rates.
- Steady employment. Job stability is important for no money down financing. It proves to the lender that you can make the monthly payments.
- Cosigner. A cosigner is not required, but having one with a strong credit score can help you get a zero down car loan.
- Preapprovals. Shop for a car loan before you enter a dealership. Contact multiple banks, credit unions, and lenders to get quotes for loan terms. If you find a good offer, get preapproved. The preapproval will give you more negotiating power at the dealership.
- Personal bank account. You may be able to get a discount if you set up automatic payments.
How to Get the Best No-Down Payment Loan
Without making a down payment, your loan can quickly become very expensive. The first step to borrowing less is to get the best price on the car. Research the market to assess the value of the car, and learn more about the vehicle's invoice pricing for negotiations.
The next step is to contact several dealers for quotes. Additionally, get quotes for loans and preapprovals from multiple lenders. Use this information to negotiate the lowest price possible with the dealer. Only after you've determined the price should you discuss financing options.
Avoid add-ons. Dealerships tend to push add-ons and other features that make the loan more expensive. Typically, these products are overpriced and not a good idea to add if you're looking to get the best deal.
If possible, trade-in your current car. For one, you'll only have one car payment which can help you get a better rate with the lender. Additionally, you can use your positive equity as a down payment.
Should I Do a No-Money-Down Car Loan?
Experts recommend putting down around 20% for your car loan, and understandably many buyers don't have this available. However, even a small down payment is better than none. While it's possible to get a no-money-down car loan, it's rarely the best option. Instead, put down what you can, as even a small down payment could improve the LTV (Loan-to-Value) ratio and help you get a loan with a lower APR.
The bottom line is that you can buy a car with no down payment, but it's often less expensive (and a smarter choice) to either buy used, trade-in your vehicle, or put down even a small down payment.
Frequently Asked Questions
Can I get an auto loan with no down payment?
In short, you can get an auto loan without a down payment, but you will need excellent credit or a cosigner to qualify.
What credit score do I need for a 0 down car loan?
You'll need excellent credit, generally a credit score of 720 or higher. If you do not have good credit, you may also use a cosigner with excellent credit.
Is a zero down car loan a good idea?
There are many considerations for a zero-down car loan. Typically, this kind of financing leads to higher interest rates and can leave you "upside-down" in the loan, in turn paying more in total costs.
Should I do a low down payment or no down payment for my car loan?
Each buyer's situation is different, but most often it's beneficial to put money down for your car loan, even if it is not the full 20% down.