What To Know About Zero-Down Bad-Credit Car Loans
One of the biggest hurdles to overcome when buying a car is drumming up a down payment. You might be able to drive off the lot without forking out any cash. However, this is usually only an option if you have strong credit.
That doesn’t mean zero-down bad-credit car loans don’t exist, but you’ll probably need to spend some time shopping around. And while a zero-down-payment car loan will provide upfront savings, they are risky. You might even end up upside down.
What is a bad-credit car loan with zero down?
Not all loans require a down payment.
Personal loans, for example, typically have no upfront costs. Auto loans, on the other hand, usually require a down payment on the car you’d like to finance. Then, you’ll use your auto loan to pay for the car’s remaining balance.
In some cases, your lender or dealer may let you skip the down payment, especially if you have good to excellent credit. If you have a bad credit score (300 to 579), you might have a hard time qualifying for a loan at all, let alone one with no down payment.
However, there are exceptions to every rule. You might find a bad-credit car loan by shopping with a buy here, pay here (BHPH) dealership. On a BHPH loan, the dealership provides the financing instead of a lender. BHPH loans are more accessible to bad-credit borrowers, and some don’t require a down payment.
In a perfect world, it’s a good idea to avoid BHPH loans. They come with high interest rates, sometimes qualifying as predatory. Further, BHPH loans have looser vehicle restrictions regarding vehicle age and condition. As a result, you could end up paying more than what your car is worth over the life of your loan.
That said, BHPH falls on a spectrum. Take CarMax and Carvana, for example. These dealerships are BHPH, but compared to independent BHPH lots, CarMax and Carvana loans tend to be more competitive.
Where can I get a car loan with zero down?
CarMax and Carvana are popular choices for buyers who need bad-credit auto financing. Neither lender has a minimum credit score requirement, and each offers options for a zero down payment.
Note, though, that you won’t qualify for the starting APRs shown below unless you have excellent credit.
| Lenders | Starting APRs | Loan terms | Loan amounts | Minimum credit score |
|---|---|---|---|---|
 | 5.99% | 24 to 72 months | $500 to $100,000 | None |
 | 6.85% | 36 to 72 months | From $5,000 | None |
- Starting APR: 5.99%
- Loan terms: 24 to 72 months
- Loan amounts: $500 to $100,000
- Minimum credit score: None
There are two ways to buy a car with CarMax: online or at a dealership. CarMax has 246 locations across the country. If you prefer to skip the lot and you live within 60 miles of a CarMax dealership, you could get your car delivered for free.
CarMax also offers in-house financing. You can prequalify online, and you’ll likely get an approval decision within minutes. You can also switch to another lender for free if you find a better loan offer within three days of purchase.
Read our full CarMax auto finance review.
- Starting APR: 6.85%
- Loan terms: 36 to 72 months
- Loan amounts: From $5,000
- Minimum credit score: None
Unlike CarMax, you can’t go to a Carvana dealership to kick tires. Instead, Carvana does business entirely online.
First, you’ll use Carvana’s website to shop its extensive inventory of used vehicles. Once you’ve chosen a car, you can prequalify for a Carvana auto loan. If approved, you can get your vehicle delivered to you or pick it up at one of Carvana’s Car Vending Machines.
Carvana’s Car Vending Machines are not dealerships — they are simply the location where you can pick up your car. With only 39 Carvana Car Vending Machines across the country, you may need to opt for delivery. If so, prepare for a delivery fee.
Read our full Carvana financing review.
Are zero-down-payment car loans a good idea?
The 20/4/10 rule is sound financial advice. Here, you would put down at least 20% when buying a car. Still, zero-down bad-credit car loans can be a lifesaver if your car breaks down beyond repair.
But know that skipping your down payment isn’t always the best option. A zero-down-payment car loan could lead to:
Higher APRs
A down payment means you have some money invested in the transaction, so lenders consider you less likely to default. As a result, car loans with a down payment usually have lower interest rates than those without.
Upside-down car loan
A down payment will also make it less likely you become upside down on your loan. When you have an upside-down car loan, you owe more on your vehicle than what your vehicle is worth. This is also called negative equity. Upside-down loans can make it a hassle to trade, sell or refinance.
More debt
No down payment means a bigger car loan, leading to more interest (unless you pay your car loan off early). You might also need to choose a longer term to keep your monthly payments affordable, which means you’ll pay more interest over the life of your loan.
How to get a zero-down bad-credit car loan
If you’ve decided that you’re a good candidate for a car loan with no down payment, here’s what to do next:
1. Check your credit score
It’s wise to check your credit score before you apply for any type of financing. Knowing your credit score will help you see what auto lenders you qualify for and whether your loan offers are competitive.
You should also order a free credit report and dispute any errors you find. Errors are rather common, and getting them cleared from your credit history can boost your score.
2. Determine your car’s value, if you’re trading it in
If you’re trading in your car and it’s worth more than what you owe on it, you could use the difference as a down payment. For instance, let’s say you have $4,000 left on your auto loan, but the dealer will give you $6,000 in trade-in value. In that case, you could put the $2,000 down on your new car.
3. Shop for a car and research multiple lenders
You may be limited to BHPH car dealers if you have poor credit and need a zero-down car loan. With these, you’ll need to pick out a car at the dealership giving you the loan.
Whether you get in-house financing or a traditional auto loan, take advantage of prequalification. Prequalification only requires a soft credit pull, so it doesn’t have a negative impact on your credit score.
Aside from comparing APRs and loan terms, you should also read customer reviews. If you’re getting a BHPH loan, it’s especially important to check the Consumer Financial Protection Bureau’s Consumer Complaint Database. Lots of complaints could point to predatory lending.
4. Ask for a breakdown of taxes and fees
Unless you’re paying for taxes, registration costs and dealer fees out of pocket, you’ll need to roll these expenses into your loan. How much you’ll pay in taxes, title and license (TT&L) fees depends on your state. Before you get your heart set on a vehicle, ask the car dealer for the “out-the-door” price so you understand the total cost of your loan.
5. Check your budget
Just because you can buy a car with no money down doesn’t mean you should. Head over to our car affordability calculator to estimate your monthly car payment, considering interest.
If your estimated car payment is beyond your budget, you might need to save for a down payment or pick a cheaper car.
Tips for getting a car with no down payment
Improve your credit: While not an easy fix, you’re more likely to drive off the lot sans down payment if you have good credit. Making on-time payments or paying down current debt can improve your credit score over time.
Consider a cosigner: Adding a cosigner to your auto loan could help you unlock a no-money-down car loan. However, any missed payments will affect your cosigner’s credit score as well as yours. Before looping someone into your loan, be sure you can keep up your end of the deal.
Make sure the timing is right: Car loan applications will usually ask for your residence and employment history. To a lender, bouncing around indicates instability. If you’ve recently moved or taken a new job, you might want to wait a while before applying. That is, unless your new job significantly boosted your income.
Frequently asked questions
Usually, you must have good credit to get a car with no down payment. Even then, you might need to wait for a manufacturer incentive or promotional sale. If you have bad credit, you may still have a chance if you go through a BHPH dealership (but beware of high APRs).
Every lender sets its own requirements for zero-down-payment deals, if they offer them at all. Generally, the credit score needed to buy a car is at least 661 (down payment notwithstanding). You could still get a car loan if your score is lower than 661, but be prepared to pay higher interest rates.
Maybe, especially if you target bad-credit auto loans. These loans can be pricey. You may instead want to improve your credit score before financing a car. Otherwise, you could flush thousands of dollars down the tube in interest and fees.