Options for Buying a Car with No Down Payment

If you consistently make your car payments on-time and have excellent credit history, you may be able to avoid making a down payment on a new car purchase. 

On the other hand, you will likely face pressure to make a down payment if your credit score is low or if you have spotty payment history.

If you're short on cash, you can consider these strategies:

Postpone the Purchase: This might be the most logical option to buy a car while putting no money down. Postponing your car purchase will allow you more time to save money for a down payment and/or to improve your credit score.

Secure a Co-Signer: If someone with good credit can co-sign for you, their strong credit profile may help you acquire a no down payment deal with a reduced interest rate. In doing so, the co-signer takes responsibility for making missed payments or repaying the loans if you can’t.

Consider Using a Credit Card: Some dealers accept credit cards for down payments. This isn’t the most economical method due to potential extra fees and adding to credit card debt, but it might be a viable option in specific scenarios.

Leverage Your Trade-In: If you already have a car and plan to upgrade, you can trade your car in. The amount of money your car is worth can be part of, or the entire down payment. It’s important to consult different places to ensure you’re getting the best deal or by selling directly to potential buyers for a higher value.

Choose A Cheaper Car: Another way to eliminate or reduce the need for a down payment is to pick a less expensive car to get. Doing so can help minimize the loan amount you’ll need to pay. When you take all the costs involved with purchasing a car like registration, sales tax fees, car insurance and title fees, a cheaper car might eliminate the down payment need.

Benefits Of Buying A Car With No Down Payment

The main benefit of buying a car with no down payment is obvious: you don’t need to save up tons of money to get behind the wheel of the vehicle you want or need. This is especially helpful if you just graduated from college and are starting your career, have a limited personal budget, or are dealing with extra expenses. 

Another benefit of no-down-payment car financing is that it allows you to keep your savings and invest them elsewhere, such as in a high-yielding savings account or a stock portfolio. However, by not making a down payment, you’ll likely have to pay more in interest and monthly payments, which can add up over time.

What Is The Risk of Buying a Car with No Down Payment?

While zero down payment offers immediate savings, it might cost you more over time. Financing a larger amount influences the term of your loan, including its loan-to-value ratio (LTV) - a key determinant for interest rates. A higher LTV, resulting from borrowing close to or exceeding the car's value, will often come with a higher interest rate due to increased risk for the lender.

Another risk is that not paying any money down when purchasing a car can increase your monthly payments. In order to manage this, most people opt in for extended loan terms, sometimes as long as 6+ years. This elevates the risk of ending up "upside-down" on the loan—owing more than the car's depreciating value. Being in this situation might can pose difficulties should you wish to sell or trade in later.

Consider Putting as Much Money Down on a Car as you Can

Regardless of the percentage, putting any sort of money down will help with payments. If you can't put down 15-25%, consider putting down 10%. For example, a 60- month, $40,000 new car loan with an interest rate of 7.5% and no down payment will result in a monthly payment of $801.59. If you were to put 10% down ($4,000), this would reduce the monthly payment to $721.43.

Paying more upfront can lead to lower interest rates, decreased total interest, and a higher likelihood of loan approval. If your finances allow for it over time, you can put extra money towards your monthly payments which will expedite the loan payoff and prevent negative equity in your car.