You desperately need to buy a car, but you lack the cash or the required down payment. No problem, says the auto dealer: You can finance the whole purchase—at interest rates that range as high as 12% to 22%. Unless you like the idea of paying such exorbitant terms, consider these ways to buy an auto with no money down.
- If you need to totally finance your car purchase, 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.
- Be sure to shop around at dealers and lenders; the more you know about rates and terms, the better a deal you can negotiate.
- 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 a credit record that shows they can meet their payments.
Credit scores of 680 and higher give you the best chances of persuading a lender to waive your down payment without raising interest rates. Scores between 580 and 669 are considered subprime; the lender may waive the down payment, but will certainly ding you with a higher interest rate on the entire loan. A score that is 580 and below may cause the lender to reject you altogether.
Your first step is to straighten out your credit report by checking its accuracy. Then, take steps to boost your credit score. Pay all bills on time, and try to pay off debts and credit card balances—or at least keep them low, around 25%–30% of your total credit limit.
Consider a Cosigner
Another option is to get a family member or friend with a strong credit score to cosign the purchase contract with you. It might get you out of the down payment, though it only helps you lower your interest somewhat, since lenders realize that the car is usually for the person with the weaker score and typically offers an annual percentage rate (APR) that hovers around the median range.
Getting a cosigner is not to be done lightly. The person shares the responsibility of the loan with you: If you miss a payment, or are habitually late, you lower your credit score and that of the cosigner, too. It can also be fraught with emotion—although a cosigner technically has no ownership in the vehicle, they could feel they've a right to it. If you do get a cosigner, share the title; be diligent in your repayments, and keep organized records to prevent disagreement.
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.
Before asking around, familiarize yourself with the most common auto loan rates to avoid being duped or misled by dealers. They're a competitive bunch, by nature, and if you show you know what the going rates are and what others offer (implying you'll take your business elsewhere), it's amazing how the person you're dealing with suddenly will "see what we can do for you."
Save Up for a Down Payment
Yes, we know the title of this article is How to Get a Car With No Down Payment. But we'd be remiss if we didn't say: You really do a lot better if you can come up with some cash. The problem with not making a down payment is that it can leave you in an upside-down situation should you want to sell the car down the road. Cars depreciate fast. You could end up seriously out of pocket, even owing a lot of money, if the outstanding balance on the loan is more than the car's resale value.
And the bite might not be as bad as you think. While 20% down has been the traditional amount, dealers have lately gotten more flexible in the minimum cash amounts they require. In fact, car buyers in 2019 made an average 11.7% in down payments, due to the increasing costs of vehicles. Of course, the more in cash, the better. But any amount of down payment is recommended because it lowers the amount you owe in principal and interest, and avoids the "underwater" scenario above.
The range of required down payments for a new or used auto, according to the Kelley Blue Book.
If you can, wait several months before you buy your car so that you can save up for the down payment. Along with saving, use that time to boost your credit score, so that you'll qualify for more favorable loan terms.
The Bottom Line
It is possible to buy a car with no down payment, but you run a higher risk of being tagged with steeper interest rates. You can always buy a cheaper used vehicle or trade in your existing car, if you have one that's in good condition, since such steps usually lower your rate, too. In all cases, look for short-term loans that are less than 72 to 84 months long, and avoid extras, such as extended warranties or credit life insurance, which may raise your overall payments.