If you need to buy a car, but you lack the cash or the required down payment, you can typically finance the whole purchase. However interest rates will be significantly higher. However there are ways to get a car with no money down while getting lower rates, such as by getting co-signer, increasing your credit score, and negotiating the terms.
Key Takeaways
- Increasing your credit score can qualify you for better loan terms.
- Getting a co-signer might also let you buy a car with a down payment.
- Shop around at dealers and lenders so you can negotiate the terms.
- Even a small down payment is better than none—so delay a car purchase, if possible, until you can come up with some cash.
Boost Your Credit Score
Lenders lower interest rates for borrowers who have steady jobs or regular monthly income, who have lived in one place for at least a year, and who have good credit history.
Credit scores of 680 and higher give you the best chances of getting your a car with no down payment without higher interest rates. Scores between 580 and 669 are considered subprime. If you have a subprime score, you may be able to get a car with no down payment, but you will likely have a higher interest rate on the car loan. If you have a score below 580, you may not get approved for a card loan.
You can improve your credit report in several ways, including by first checking its accuracy. Then, pay all your bills on time, and try to pay off debts and credit card balances. Aim to keep your credit utilization rate, or the amount of your available credit that you use, around 25% to 30%.
Consider using a credit monitoring serviceto help ensure your information stays safe.
Consider a Cosigner
Another option may be to get a family member or friend with a strong credit score to cosign the loan. If you have poor credit, having a cosigner can help you get a car with no down payment and with potentially lower interest rates.
Using a cosigner to get a car loan does have downsides to consider. If you are delinquent or default on your payments, both your credit score and your cosigner's credit score will likely decline. Depending on a cosigner can complicate your relationship with them if it leads to conflicts. For example, they could feel they've a right to the vehicle or they may start to resent you if you fail to pay the loan. If you do get a cosigner, keep organized records to minimize disagreements.
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Shop Around
Car loans can vary a lot. So do your homework, and shop around. Consider auto dealerships, local credit unions, banks, or alternative loan providers. Research current auto loan rates online, and look for specialized online lenders that offer low-rate auto loans without down payment requirements.
Familiarize yourself with the most common auto loan rates to avoid being duped or misled by dealers. Knowing the going rates and what offer you can qualify for will help you negotiate better terms.
Save Up for a Down Payment
While you can get a car with no down payment, it is in your best interest to try to put some money down if you can. Not making a down payment can leave you "underwater" on your loan because the value of cars depreciate quickly. You can typically make a down payment for under 20%. In fact, car buyers in 2019 made an average 11.7% in down payments, due to the increasing costs of vehicles.
The more money you put down on a loan, the greater your chances of getting lower interest rates, which can save you substantially in the long-run.
9%–12%
The range of required down payments for a new or used auto, according to the Kelley Blue Book.
If you can, delay car buying until you can save up for the down payment. Meanwhile, you can also use that time to boost your credit score, so that you'll better qualify for more favorable loan terms.
What Is the Lowest Down Payment on a Car?
The lowest down payment on a car is often zero dollars as many lenders to not require a down payment. But making a down payment is in your best interest because it will help you get better terms for loans, which can save you money in the long-run.
What Is a Loan-to-Value Ratio in an Auto Loan?
To calculate your the loan-to-value ratio of your auto loan, divide the total value of your loan by the actual cash value (ACV) of your car. Lower loan-to-value ratios often lead to lower interest rates, which can save you money. Putting a down payment on a vehicle can help you lower this ratio.
How Do I Find the Actual Cash Value (ACV) of My Car?
You can find the actual cash value of your vehicle with independent sources like Kelley Blue Book or Edmunds. It is essentially the amount of money it would cost to replace your car, or the value for which it could be sold.
The Bottom Line
You can buy a car with no down payment, but you are more likely to pay much higher interest rates. Another option is to buy a cheaper used vehicle or trade in your existing car, if you have a vehicle that's in good condition, which can help lower your rate, too.
To better understand what the costs of purchasing a car with no down payment, use a auto loan calculator to estimate monthly costs and interest expenses for various loan terms.
