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Updated on Monday, February 4, 2019
Buying a car can be a frustrating experience, but it can be even more frustrating when you don’t have money for a down payment.
There are options, even for someone with poor credit who needs a no money down car loan, but you need to be cautious. You will likely pay a much higher interest rate, and your monthly payments will be larger than if you provided a down payment.
We’ll talk about how to negotiate and start your search for a no money down car loan.
How to negotiate for a no money down car loan
Even if you have good credit, never settle for the first auto loan you’re offered, especially when you don’t have the money for a down payment. This could make you a target of a subprime lender looking to charge you a sky-high interest rate.
A down payment helps protect buyers from finance charges. Without one, negotiations are even more important because you don’t have the leverage that putting down a few thousand dollars could provide.
You should know what’s on your credit report and what your credit score is before looking for a no money down car loan. If your credit score is very poor — which FICO defines as between 300 and 579 — you can make the case that you are a good candidate by talking up other factors:
- Consistent employment history: Explain how long you have been at your current job. Lenders need to know you can make on-time payments each month. Staying with one company for an extended period could show that you are reliable and highlight that you have no income gaps.
- Reliable residence: Again, lenders are looking for proof of your reliability — a steady address for a year or longer could show stability.
- Low debt: Even if your credit is poor, what outstanding debts do you have now? A low debt-to-income ratio may help make your case that you can afford a car payment.
Through AnnualCreditReport.com, you can check your credit report for free every 12 months from each of the three main credit reporting bureaus — Equifax, Experian and TransUnion. You can get your free credit score monthly from LendingTree, which owns MagnifyMoney.
Also, if you can get preapproved for more than one no money down car loan, this could help at another dealership or lender.
Shop around for a no money down car loan
Do your homework for the right loan — and the right car. Start by comparing auto loan rates from lenders online, or talking to your credit union or bank where you have a checking or savings account.
Shopping around for a no money down auto loan is the only way to know which lenders offer the best APRs.
You can go to LendingTree, fill out an online form and — based on your creditworthiness — possibly be matched with up to five different auto loan offers from lenders. It’s important to remember that while some lenders conduct a hard pull on your credit, getting multiple hard pulls will count as just one if within a 14- or 45-day span, depending on the FICO scoring version.
As low as
24 To 84
LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.
Advertised rate is for new and used auto loans for 36 month term.
After you have multiple loan offers, you can choose the one with the best APR to save money during the life of the loan.
Know, though, that the best APRs typically are given to people with higher credit scores who have a down payment or trade-in. Individuals who have a poor credit score because they do not have a long credit history or did not pay their bills on time in the past will most likely be offered a higher APR from a lender.
Now, shop around for your car
Once you have an idea of rates, you can get more specific on your search. You may have had your eye on a certain brand and model of a vehicle for several months, but make sure you are getting a fair price by comparing selling prices, like through Kelley Blue Book, Edmunds and NADAguides. You can use these guides if you are trading in your vehicle.
Don’t just go to the auto dealership where you bought your last car or the one you drive by often. It’s easy to look up dealers online and see the prices for which cars are being sold. Being flexible can help you save more money. Even a different color could save you.
Dealerships want to sell you a car, so show them what their competitor’s price is and see if they will match or beat it.
If you have a family member or friend who would let you borrow the money for a small down payment, you could negotiate for a better interest rate. Lenders prefer receiving even a few hundred dollars as a show of good faith toward a new loan.
If you’re seeking a $15,000 vehicle at a 6% APR for five years but you don’t have a down payment, you would pay $289.99 a month — and that’s before taxes and fees are included. This would be $17,399.40 after five years, or $2,399.40 in interest.
If you’re able to put $1,000 down, you’d pay $270.66 a month, or $16,239.60 total, a difference of about $1,160. The savings could be minimal once you include the money you need to repay to the family member or friend, but you may have longer to repay that person — and without interest.
If you can’t provide a down payment, a trade-in could be just as good. If you’re seeking that same vehicle with a $15,000 purchase price but you have a $3,000 trade-in, you’ll just need a $12,000 loan. If at that same 6% APR for a five-year term, you’d pay $231.99 a month, which is a big per-month savings over our previous scenarios.
Repair your credit first. We’ve also talked about how important your credit score is in getting a good APR. Through Experian, you can boost your credit score by allowing your cellphone, cable and utility payments to be included on your credit report. If you don’t have the money for a down payment, you could try boosting your score before applying.
Separately, you can show a positive payment history by obtaining a secured credit card. Paying off your balance in full each month — and on time — can put you on the right path.