Considering car prices these days, it’s understandable that not every buyer will have enough money set aside for a substantial down payment — but the downsides of buying a car with no down payment often outweigh any benefits. Not only will your monthly payment be higher, but you’ll pay more in interest over the life of the loan thanks to a higher loan balance and likely a higher auto loan rate.
But if you’ve weighed the pros and cons and want a no-down-payment car loan — perhaps you’ve exhausted alternatives like postponing your purchase — there are strategies you can use to qualify and keep costs as low as possible. Strengthen your application by adding a cosigner and applying with strong credit, and if you’re planning to trade in your old car, be sure it’s in good condition.
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6 strategies to buy a car with no down payment (and bad credit)
Some lenders won’t consider your loan application without a down payment, especially if you have bad credit. However, you still have options for buying a car without one if you’re willing to be a bit flexible:
1. Maximize your trade-in value
Trading in your current vehicle can help cover some of the costs of your new car, decreasing your overall cost of borrowing and acting as a de facto down payment. Depreciation will take a bite out of your trade-in’s value, but you’ll earn more if your car is in tiptop shape. Before bringing it to the dealership for appraisal, get the car detailed and take care of any dashboard warning lights.
It’s important to know how much your car is worth, so research the market value using industry guides like Kelley Blue Book or Edmunds. You probably won’t receive the full value since car dealers are trying to make a profit off your trade-in, but knowing the value will strengthen your negotiating position.
If you’re willing to do a bit more legwork, consider selling your car privately. You’re likely to make more money on the sale, and then you can use that cash as a down payment for your next car. You can use free sites like Craigslist or Facebook Marketplace, or you can place a paid ad on Autotrader to attract more serious buyers. You’ll have to find the right buyer and handle all the paperwork, including a bill of sale, title transfer and a release of liability form.
2. Choose a less expensive vehicle
Buying a cheaper car may be a worthwhile option if you can’t provide a down payment since you’ll be financing a smaller amount. A smaller loan amount means less risk for the lender, so you may be more likely to qualify even if you can’t offer a down payment.
Of course, a more economical car should still meet your needs — whether that’s having enough seats to fit your family or providing enough trunk space to haul work-related gear.
3. Apply with a cosigner
Applying for an auto loan with a creditworthy cosigner can help you qualify without a down payment since it strengthens your application in the eyes of the lender. Your cosigner must meet all the lender’s requirements, including credit scores and income.
Keep in mind that cosigners are required to take over payments if the borrower stops making them — so agreeing to cosign a loan is a major financial decision that can adversely affect your relationship.
4. Improve your credit scores
The better your credit, the more likely you are to qualify for a car loan and receive affordable rates. Here’s a look at current auto loan rates by credit score range:
| FICO Score | Average new car rate | Average used car rate |
|---|---|---|
781 to 850 (super prime) | 5.38% | 6.80% |
661 to 780 (prime) | 6.89% | 9.04% |
601 to 660 (near prime) | 9.62% | 13.72% |
501 to 600 (subprime) | 12.85% | 18.97% |
300 to 500 (deep subprime) | 15.62% | 21.57% |
Source: Experian’s State of the Automotive Finance Market report, Q1 2024
Check your credit scores before applying. If they need work, take steps to boost your scores by paying down your credit card balances and reviewing your credit reports for errors. You can start by requesting your free credit reports via AnnualCreditReport.com and monitoring your scores via your financial institution, credit card issuer or a third-party service (for a fee).
5. Shop around for a lender
Not all lenders will let you buy a car with no down payment, so it’s important to research and compare several options to determine which ones offer what you’re looking for. What’s more, each lender sets unique loan terms, interest rates and eligibility criteria, so even though you’re submitting the same information to multiple financial institutions, you may get different results.
Start by getting preapproved with at least three lenders, including banks, credit unions and online lenders. You may find that credit unions are most likely to be flexible with eligibility requirements — plus, they’re known for having some of the best auto loan rates.
6. Postpone your car purchase
If the options outlined above aren’t feasible for your situation, your best bet may be waiting to buy that new or used car while you save for a down payment. That way, you’ll be able to access more favorable car loan terms, which can help you save money in the long run.
Pros and cons of buying a car with no down payment
| Pros | Cons |
|---|---|
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Not making a down payment for a car purchase has some benefits, but they’re short term: You can get the new car quickly — and maintain your desired lifestyle — without dipping into your emergency fund.
But if you want the best deal, the cons outweigh the pros. Forgoing a down payment generally means that your auto loan will have a higher interest rate, increasing your long-term costs. Your monthly payment will also be higher since you’re financing a larger amount, increasing your short-term costs as well.
Many lenders require a down payment — whether that’s cash or the trade-in value of your current vehicle — so your loan options will be limited if you can’t offer money upfront.
But the biggest danger comes from depreciation. Cars lose their value over time, and after five years, your car may be worth only half of what you paid for it. By getting a loan for the car’s full value at purchase, you could quickly end up owing more than it’s worth, also known as being upside down (or underwater) on the loan. To prevent this, keep your car payment at 3% to 5% of your monthly net income and limit your loan term to three to five years.
Expert’s take: While it may be possible to buy a car with no down payment, there are two primary reasons to reconsider, said Stoy Hall, an Iowa-based certified financial planner (CFP). “Reduction of your interest rate and to make a payment fit your budget,” he said.
Should you buy a car without a down payment?
“If the loan will be affordable every month with a three- to five-year term and a fair interest rate, you can skip the down payment,” said Cait Howerton, a CFP based in Atlanta. “However, putting money down will reduce the total amount borrowed, the monthly payment and the interest paid over time.”
Example: Let’s say you qualify for a $35,000 no-money-down car loan with a five-year repayment term and a 7% interest rate. Your monthly dues would be $693 and you’d pay $6,583 in interest over the life of the loan. However, by making a $5,000 down payment, not only would you finance a smaller amount, but you’d qualify for a 5% APR instead. On this $30,000 loan, your monthly payment would go down to $566, and you’d pay $3,968 in total interest — an overall savings of $2,615.
Takeaway: Even a small down payment can save you money each month and hundreds or even thousands of dollars in interest in the long run.
5 tips for saving for a down payment
Sure, it may be possible to buy a car with no down payment, but if you can’t afford the higher costs that come with a no-money-down loan, consider the following strategies to save for your next vehicle purchase:
- Evaluate your budget. If you don’t already have a budget in place, quickly create one by tracking your monthly income and expenses for the past three to six months. This can give you a general idea of whether you have room to set some extra cash aside. You might also categorize each expense to get a full picture of where your money is going.
- Reduce unnecessary expenses. After reviewing your recent financial history, examine your discretionary spending to identify areas where you can cut back. Going out to eat fewer times each month, splitting a streaming subscription with a friend or family member or reducing impulse buys can help you save money that can go toward your down payment.
- Set a savings goal. Experts generally recommend putting at least 20% down on a new vehicle purchase or 10% down on a used car. But don’t be discouraged if you don’t have the time to save that much — a down payment of any size can help. Consider your car-buying budget and use an auto loan calculator (like Calculator.net’s) to determine how much you can afford to spend on a vehicle. Calculate your desired down payment and divide that figure by the amount you can afford to save each month to determine how long it’ll take you to accomplish your goal.
- Create a dedicated down payment savings account. This step can help you track your progress and avoid spending your saved funds. Open a high-yield savings account with your current bank or another financial institution, then create a recurring transfer to automate your savings.
- Increase your income. If you don’t have extra income to save or want to achieve your goal faster, consider ways to earn more money. For example, you might take on additional hours at work or find a part-time job. Alternatively, you could start a side hustle to earn money on your own time.
Additional reporting by Ben Luthi
Frequently asked questions (FAQs)
Buying a car with no down payment means you’ll be financing the full price of the vehicle, including costs like dealership fees and sales tax, rather than paying some of that money upfront.
There’s no universal minimum credit score you’ll need to avoid a down payment, but generally, your best bet is to have good credit or better — scores in the mid-600 or above. If your scores are holding you back, adding a creditworthy cosigner to your loan application could improve your odds of getting a bad credit car loan with no down payment.
You may qualify depending on the auto lender you choose. But be careful: a car loan with no down payment and poor credit is likely to have a sky-high interest rate, making it a very expensive way to borrow money. Be wary of “buy here, pay here” car lots that advertise no credit checks and no money down — these guaranteed loans are often predatory, or at worst, a scam.
Making your auto loan payments on time each month is among the best ways to build your credit since payment history is the biggest factor that affects your credit scores, accounting for 35% of the total. You may also consider becoming an authorized user on a family member’s credit card to establish or lengthen your credit history. As always, practice good credit habits like keeping revolving debt low and making all payments on time.
Before trading in your car, research its value so you can advocate for a fair trade-in price. You can boost your vehicle’s value by fixing any outstanding mechanical issues and thoroughly cleaning the car, inside and out. Keep in mind that if you need top dollar for your old car, you’re likely to get more for it if you sell it yourself, rather than trading it in.
