How to Get a Car Loan With No Down Payment

How Do No Down Payment Car Loans Work?

When you take out an auto loan with no down payment, you’re generally using the loan to cover the full cost of the purchase—though that may not be the case if you trade in your existing vehicle.

You might consider this option if you don’t have any cash saved up or if you don’t have sufficient funds to make the down payment and cover other short-term savings goals.

In addition to the sales price of the vehicle, your no down payment car loan will also cover any add-ons included in your purchase contract, plus registration, title and document fees, sales tax and other necessary costs.

Before you opt for a no down payment car loan, however, here are some advantages and disadvantages to consider:

How to Get a Car Loan With No Down Payment

If you’ve determined that the added costs and risks of a no down payment car loan are worth it to you, here are some steps you can take to obtain a loan without the upfront costs.

Improve Your Credit Score

Lenders are more likely to require you to put money down if you have a low credit score, primarily because it helps mitigate some of the risk of lending to you. Also, while putting no money down can potentially increase your loan’s interest rate, it may not have as much of an impact if you have a high credit score.

By improving your credit score, you may have an easier time finding lenders willing to forgo a down payment requirement. There’s no universal minimum credit score to get you there, but a score of 720 or higher will maximize your chances of securing favorable terms.

To improve your credit, start by checking your credit score and credit report to get a sense of where you stand and which areas of your credit file need some work. Some general guidelines to consider include:

• Always paying your bills on time
• Getting caught up on past-due payments
• Paying down credit card balances to reduce your credit utilization rate
• Minimizing new credit applications
• Asking a loved one to add you as an authorized user on their credit card

Learn more >> How to Raise Your Credit Score in 30 Days

Trade In Your Car

If you currently own a vehicle, you may be able to trade it in and use the proceeds to act as a down payment for your new purchase.

Keep in mind, though, that the benefit of a trade-in may be limited based on the vehicle’s value and any outstanding loan balance you may have. It’s also important to note that you may be able to get more money if you sell the car in a private-party transaction instead of to a dealer.

However, if you prefer the convenience of a trade-in, do some research about its value using resources like Kelley Blue Book or Edmunds, so you can potentially negotiate a better deal.

Learn more >> How to Trade In a Car

Compare Lenders

Each lender has its own criteria for determining down payment requirements and interest rates, so it can help to shop around and find the best fit for your needs.

In particular, here are some factors to consider as you compare your options:

• Loan-to-value limits: Some lenders may offer more than 100% of the car’s value to account for add-ons, sales tax and fees. In some cases, the loan-to-value ratio (LTV) can go as high as 150%. Knowing a lender’s LTV limit can give you an idea of whether a down payment may be required.
• Preapproval: Some lenders allow you to get preapproved or prequalified before submitting an official application. Depending on the lender, this may or may not require a credit check, and it can give you more details about your possible loan terms, including a down payment.
• Interest rates: Whether or not you put money down, you’ll want to try to get the lowest interest rate possible on your car loan. Getting preapproved with multiple lenders can help ensure that you get the best deal possible.

Get a Cosigner

If your low credit score is making it difficult to qualify for a no down payment car loan, consider adding a creditworthy cosigner to your application.

If your cosigner has good credit and a solid income, those traits may be able to help you qualify for better loan terms, including a zero down payment.

Note, however, that your cosigner will be expected to take the responsibility of making payments if you can’t. Also, the debt will be added to their credit reports along with yours. It’s crucial that you discuss their responsibilities before moving forward.

Learn more >> Should You Get a Cosigner on a Car Loan?

Negotiate Loan Terms

Depending on the lender and your situation, you may be able to negotiate some of the terms of your auto loan.

For example, you may be willing to take a higher interest rate or a shorter repayment in exchange for no down payment. You can improve your negotiation options by getting preapproved with multiple lenders and using terms offered by each in your argument for a more favorable loan.

The Bottom Line

While there are some potential drawbacks to a no down payment car loan, it may be necessary if you urgently need a new vehicle and don’t have enough savings for one.

As you prepare for your vehicle purchase, it’s important to regularly monitor your credit score and look for opportunities to increase it. With Experian’s free credit monitoring service, you’ll get access to your FICO Score and Experian credit report, making it easier to get insights on how to improve your credit and track your progress.