Auto Loans

No Money Down Car Loans

It’s possible to buy a car without a down payment, and it’s even pretty easy to shop around for a no money down loan — but there are plenty of reasons to approach such offers with caution, especially if you have poor credit.

The concern with no money down car loans, also known as zero down or no cash down car loans, in which you don’t give a down payment, is their often high APRs. No money down car loans with lower APRs are typically offered to borrowers with good credit (700 and above). To get the best deal on no money down car financing if you don’t have good credit you must shop around, negotiate, get a good price for the car and potentially use your trade-in if you have one.

Shop around for a no money down car loan
How to negotiate for a no money down car loan
A good car price could help you get a no money down car loan
A trade-in could help you get a no money down car loan
The bottom line: 4 final tips

Shop around for a no money down car loan

Don’t just apply to one lender and give up if they say you have to have a down payment. The more lenders you apply to, the better your chances are of finding the loan offer that works for you. It doesn’t hurt your credit to apply to multiple lenders for the same type of loan any more than it does to apply to one lender, as long as you submit all your applications within a 14-day window. You could read this if you’d like more information on how to get an auto loan in 2018 if you have poor credit.

Potential lenders you could apply to include your bank, credit union or online lender. And on LendingTree, you can fill out one online form and get up to five potential loan offers.

How to negotiate for a no money down car loan

If a lender says that it requires money down or provides a high APR, you could point out some things to prove you are creditworthy enough for a zero down auto loan. These include:

  • Multiple offers. If you have two no money down auto loan offers, talk to the lender that gave the higher APR, tell them about the offer you received with the lower APR and ask them to beat it. This way you’re making lenders compete for your business.
  • Steady employment. If you’ve been employed at the same place for at least a year, that shows job stability, which lenders view as very good. And, of course, the higher your income, the more likely it is the lender will see you as capable of making the auto loan payments.
  • Reliable residence. If you’ve lived in the same place for a year or more, that also shows stability, which is good.
  • Credit history. Even if your credit isn’t great, if you had or have a loan that you are paying for on time, that can be a major point in your favor.
  • Low debt. If you don’t have many other outstanding loans, such as student loans, or your other debts, such as rent, are low compared with your income, that could show you’re able to pay back a car loan without much problem.

These may be reasons you deserve to have a no money car loan with a lower APR, and you can use them to make your case to the lender directly or a dealership salesperson. But it’s always a good idea to shop for a preapproved auto loan before you go to the dealership.

A good car price could help you get a no money down car loan

When you do start car shopping, remember: What’s important to the lender is that the car is worth more than what you borrow for it. One way to do this is to get a good price on the car. If a car is worth $10,000, but you only need to pay $8,000 for it, that’s a good deal on the car and you could probably get a good deal on the loan.

Know what a car is worth. The price of a car isn’t necessarily how much it’s worth. The price could be way over its value, especially at dealerships. You can use what the lenders use to know what a car is worth (and how much you should pay) by using free tools such as NADAguides or Kelley Blue Book. You can read more about how to determine car value here. The goal is to pay less than what the car is listed for in one of these guides.

Consider the fees. Remember that with a zero down car loan, you aren’t just borrowing money for the car. You’re also borrowing money to pay for the taxes and fees on the car. No matter how you get the car, you’ll have to pay taxes, title and license (TT&L) fees to the government. There are also dealership fees if you get the car at a dealership or car lot, rather than directly from a private seller. The rule of thumb is that all of those fees add up to be 8%-10% of the car’s price. So, on your $8,000 car, you’ll really need to borrow between $8,640 to $8,800. In this case, the total amount you’re borrowing is still less than what the car is worth — $10,000.

To know which fees are legit and which ones you could negotiate on, you could read this piece on dealer fees to watch out for when buying a car.

A trade-in could help you get a no money down car loan

If you have a current vehicle, trading it in could help you in two ways:

  1. One car payment is better than two. Lenders want to know that you’ll be able to pay them back. If you have two car payments, you would probably have a harder time paying both of them. If you trade in your current car that you’re still paying on, lenders know you won’t have two auto payments; they’re more likely to work with you with just one active payment.
  2. Positive equity can count as a down payment. If you have positive equity in your trade-in — that is, if it is worth more than what you owe on it, that difference can count as a down payment. Say your trade-in is worth $4,000 and you only owe $1,000 on it. The difference goes toward decreasing what you would borrow for your new auto loan.

Beware of negative equity. Beware, the reverse is also true. If you owe more on your trade-in than what it’s worth, that’s negative equity. You either have to pay off the difference before you trade in the car, or roll the negative equity from that car into your new car loan, which could immediately mean you’re in the same situation — you owe more money on the loan for the new car than what it’s worth.

For example, say you want the $10,000 car that is for sale for $8,000. And you have a trade-in that’s worth $1,000, but you owe $4,000 on it. That means you have $3,000 of negative equity. That, plus the 8%-10%  in taxes and fees means you would be borrowing, totals more than what the car is worth, even though the car itself is priced 20% under value. This means lenders may less likely give a loan and, if they did, the APR would likely be higher than if you gave a down payment.

The bottom line: 4 final tips

Shop around for the car loan a lot like you would for a car. Don’t be afraid to tell the lender or the dealer why you’re creditworthy and use multiple loan offers to get a better deal. Look how much the car you want is worth and don’t pay more than that. And, finally, if you have one, use your trade-in to your advantage.

Here are four final tips you can use when you’re shopping for a no money down car loan:

Make sure the car you’re getting is reliable. You don’t want the car to die before you’re done paying on the loan. You also don’t want to have to pay repair bills while you’re still making car payments. You can read about how to navigate a used car inspection and how to avoid buying a lemon car.

Look at total cost. Don’t just look at monthly costs. Try to have the shortest loan period you can afford. Don’t get an 84-month long loan if you can make the payments on a 60-month loan without a problem because you will pay much more in total cost for the longer loan, which is money out of your pocket.

Be wary of “buy here, pay here” places. Used car lots that offer to finance you themselves usually offer no money down car loans but at high interest rates, and could require you to buy extra things that add thousands of dollars to your loan.

Consider a small down payment. You don’t have to put thousands of dollars down for it to count as a down payment. Even $100 counts and shows you’re contributing something upfront toward buying the car. Putting $100 down might make a big difference in getting an auto loan.


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