A car is one of the more expensive purchases people make throughout their lives. That’s why it’s important to carefully consider the cost before locking yourself into an auto financing contract and monthly payment schedule. While most lenders offer $0 down car financing, it might be worth opting to add a down payment to reduce overall cost.
Here we breakdown what you need to consider when you’re thinking about buying a car with a $0 down payment.
Can I get buy a car with a $0 down payment?
In short, yes. There are many lenders in Canada that offer $0 down car financing – but you might have to meet certain requirements to qualify for a no money down car loan.
Keep in mind that although you don’t necessarily need a down payment for a vehicle loan, your financing may cost you more in the long run. Putting up even a small down payment or a trade-in can help reduce the amount you’re on the hook for repaying and lighten the load on your monthly repayments and interest rate. But if you don’t have the cash set aside to do this, you have the option of financing the entire purchase.
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How does $0 down car financing work?
$0 down car financing is a type of loan where you borrow money to buy a new or used car without paying a lump sum up front. Before a lender agrees to lend you money to buy a car, they will calculate the maximum loan-to-value (LTV) ratio for your desired loan amount. LTV is the maximum percentage of the car’s value the lender is willing to let you borrow.
If this figure is within the lender’s LTV guidelines, you may be approved for $0 down car financing. LTV guidelines differ from one lender to the next, with some offering flexible LTVs of up to 150% or even 180% of a car’s value. The extra money can be used to pay for other car expenses besides the purchase price of the vehicle, including insurance and customization.
Is buying a car with a $0 down payment a good idea?
While it’s a convenient way to help you get a car up front, car loans with no down payments tend to come with higher interest rates and heftier monthly payments. You should also consider whether you’re ready to take on a long-term auto loan if you don’t have enough savings to come up with a down payment.
Regardless of whether you have good credit or bad credit, $0 down car financing can help you buy a car today without waiting to save up for a down payment. If this fits the bill for your individual circumstances, just make sure you compare rates, terms and fees before deciding on a loan.
Pros and cons of opting for $0 down car financing
If you’re on the fence about applying for a $0 down car loan, here’s a look at the benefits and drawbacks:
Benefits
Save cash upfront. The single biggest benefit of going with a $0 down car loan is forgoing the need for a down payment. A $0 down auto loan can help you get a car if you don’t have the cash to make a lump-sum payment upfront.
Builds up your credit. If you have less-than-perfect credit and you don’t have the cash for a down payment, a $0 down car loan can help you with both. You can bypass the need for a down payment, and if you stay on top of your monthly payments, your credit rating will improve.
Trade-ins accepted. Many lenders are happy to work with trade-ins, even if you still owe money on your vehicle. You can also use your trade-in as a down payment to help lower your monthly payments on your new loan.
Lengthy terms. You’ll be able to lock in a term lasting up to seven years with a $0 down payment car loan to help bring your monthly payments down.
Drawbacks
Higher interest rates. You may be able to secure auto financing despite having a $0 down payment, but you could end up agreeing to steep interest rates to secure your financing.
Higher monthly payments. Without a down payment to help offset your principal car loan, you could be looking at much higher monthly payments. Factor in your lender’s interest rate and APR, which pulls together all of the charges you’re on the hook for, to make sure you can keep up with your monthly payments.
Potential for additional fees. You may encounter additional fees and extra costs as you go through the $0 down payment car loan process with your lender, depending on which dealer you go with. Check for origination fees, title and registration fees, prepayment penalties and late payment fees.
How to apply and qualify for a $0 down payment car loan
While the eligibility requirements for $0 down car financing vary by lender, you generally need to meet the following criteria:
Have a steady source of income (usually at least $1,500-$1,800 is required)
During the application process for a $0 down car financing, you’ll likely need to provide:
Your name, contact information and personal details.
Valid government-issued ID such as a driver’s license or a passport
Your employment and income details
Information about your liabilities and outstanding loans.
The make, model, VIN and mileage details of the vehicle you wish to purchase.
Finally, lenders will consider the following factors when determining whether or not to approve your application for a car with a $0 down payment:
How much you can afford to borrow and pay back based on your income
How trustworthy you are with a loan based on your credit history
What kind of car you’re looking to finance
Keep in mind that lenders will zero in on your credit history when you’re applying for $0 down car financing. They need to make sure you can stay on top of your payments and you don’t have a history of going delinquent with your accounts. Make sure your credit history is accurate and that your credit score is as strong as possible before applying. It’ll make a world of difference in qualifying for a loan at a good interest rate.
What car brands offer $0 down car financing?
If you’re thinking about going through your local dealership for financing, you may be wondering if your preferred car brand allows $0 down car financing. Dealership is financing can be very convenient, but it’s worth shopping around to make sure you’re getting the best rate for your situation.
The following car brands do not require a down payment to qualify for their in-house financing programs.
Hyundai
Toyota
Chrysler
Jeep
Dodge
Ram
How to compare $0 down car financing options
Consider the following features when comparing the strengths and weaknesses of $0 down car financing:
Loan amount. Because you’re not making a down payment, the amount you need to borrow will increase. Make sure you’ll be able to afford to pay off your debt — even if you experience a month with unexpectedly high expenses.
Interest rate. This is a crucial factor to consider when choosing a loan, as the interest rate has a huge bearing on the total cost of the loan. Finding the lowest interest rate can save you thousands of dollars over the life of your loan, so shop around for a competitive deal. Remember also that lenders offer both fixed- and variable-rate car loans, so make sure you’re comparing the same types of rates.
Fees. Read the terms and conditions of any loan you’re considering to find out which of the fees listed above will apply. How will those amounts affect the total cost of your loan?
Loan term. How long will you have to repay the money you borrow? Make sure you’re aware of how the loan term will impact the total cost of the loan. A longer loan term can help lower your monthly repayments, but you’ll pay more in interest in the long run.
Required add-ons. Some lenders may require you to take out additional loan features, such as full-coverage auto insurance, in case your car is totaled or stolen and your province doesn’t already require you to have insurance that will pay off the car loan.
Car eligibility. Most lenders don’t offer car loans without a down payment for all vehicles. For example, if you’re buying a used car that’s more than 10 years old, you may find that you can only get financing through an unsecured personal loan.
6 tips to get a good deal on a car with a $0 down payment
If you don’t have any money saved up to make a down payment on a car, these tips can help you save:
Shop around to find the best rate. Applying for pre-approval with multiple lenders can help you find the lowest rate available to you. Banks, credit unions and private lenders all have car loan options for you to choose from.
Improve your credit score. If you don’t need a car right away, take the time to improve your credit score. The better your score – and credit history – the more likely you’ll be to get the down payment requirement waived.
Buy used.Used cars are less expensive and can be just as reliable as a new car. And the less you need to borrow, the less you’ll spend overall – even if you get a slightly higher APR.
Trade in your last car. If you’re able, get some money for your previous ride. This can act as a substitute for a down payment in many cases. You can even shop your trade-in at different dealerships to find the best deal.
Add a cosigner. A cosigner may decrease the APR you’re offered if you don’t have a down payment. And if your credit score is low, it may also increase your chances of approval.
Avoid add-ons. Common add-ons like gap insurance and extended warranties typically never get used but still cost quite a bit. Without a down payment, you’re more at risk of being upside-down on your loan.
Try to make even a small down payment
While it can be tempting to finance the entire cost of your car, even a small down payment can save you hundreds of dollars in interest. This will help lower your monthly payment, and your lender may even charge you a lower APR. The recommended down payment is 20%, but many lenders accept down payments as small as 10%.
Without a down payment, you may end up owing more on your car than it’s worth. Avoid loss down the road by paying something upfront.
What is the cost of $0 down car financing?
The cost of a car loan with a $0 down payment varies depending on the lender you choose, but keep an eye out for the following fees when you apply:
Origination fee. Also called a documentation or processing fee, this covers the cost of setting up your loan. Many lenders will allow you to add it to your loan principal, so you’ll need to pay it off along with the rest of the money you borrow.
Title and registration fees. You’ll need to pay to have the car titled and registered in your state of residence.
Prepayment penalty. If you pay your loan off early, your lender may levy a fee against you to help recover its lost interest. Some lenders will also charge a fee if you make additional repayments above and beyond your approved repayment schedule.
Sales tax. You’ll have to pay sales tax on your new car based on the rates charged in your province. Some provinces charge HST, while others will only charge GST. You may be required to pay GST plus a provincial motor vehicle tax depending on where you live.
Late payment fee. If you’re late making a repayment or you miss it altogether, expect to be charged a fee. Check how high this fee is before signing your loan.
Remember, lenders will quote a higher interest rate when you have a $0 down payment in addition to the fees listed above. If you don’t have a down payment, these fees will be added to your loan, which can make it easy to borrow more than your car is worth.
For example, a $20,000 car may end up costing $23,000 with $0 down car financing when all the dealership fees, registration costs, taxes and loan fees are accounted for. Without a down payment, you’ll need to finance 100% of the cost.
And after you factor in depreciation, which will lower your car’s value regardless of whether you buy new or used, you could end up upside down on your car loan. It may mean less money upfront, but you’ll likely end up paying more overall.
Can I afford $0 down car financing?
You’ll need to do the math based on your budget to decide if you can afford to buy a car with a $0 down payment. Here are the key factors to work into your calculations:
The principal. This is the total cost of the auto loan, including any fees that you need to pay. In short, this is how much you’re borrowing and need to pay back.
The term. This is how long you’ll need to make payments to repay your loan. As a rule of thumb, car loan repayment terms are typically between 2 and 10 years, depending on how much you’re borrowing and how long it’ll take you to pay it back.
The interest rate. This is the percentage that your lender will charge you to borrow the money for your auto loan. Expect a much higher interest rate because you aren’t providing a down payment.
Car loan monthly payment calculator
Calculate what your monthly payments will look like for the duration of your loan and decide if this is a financial commitment you can stick to. You don’t want to struggle to fit your car loan into your budget and miss payments, which could damage your credit in the long run.
Calculate how much you could expect to pay each month with $0 down car financing
Can you get a car loan with bad credit and a $0 down payment?
Yes, you can secure bad credit car loans with a $0 down payment. Some lenders specialize precisely in providing $0 down car financing for any type of credit situation, including no credit, poor credit and bankruptcy.
Your job is to look into these specific lenders that issue $0 down bad credit car loans and compare their loan options, including their interest rates, terms and additional charges. Compare $0 down car financing for bad credit.
I have great credit. What are my $0 down car financing options?
If you have great credit, you don’t need to limit yourself to $0 down car loans unless you don’t have the funds for a down payment. Overall, your options include the following:
Banks. Your bank most likely offers auto financing or a personal loan you can use to purchase a new car, which won’t require a down payment at all. It’s a relatively hands-off experience, and only applicants with good credit typically qualify.
Online lenders. Online car loan providers can offer faster funding for people with damaged credit or who are new to auto financing. This option is often the most flexible and easy to use, providing you with a selection of lenders who have already pre-approved you after filling out a quick online application. If you have good credit, you could be a shoo-in for an online loan.
Dealerships. You can always try to get financing directly from the dealership, though you might need to become a master negotiator to dodge typical dealership tactics. Dealerships may come with their share of hidden fees you need to pay attention to but they’re pretty convenient. You can shop for your dream car and secure financing in the same spot.
Down payment vs. $0 down payment car loans
You can decide to provide a down payment for your car loan or you can forgo this step and apply for $0 down car financing. Here’s the difference:
Buying a car with a down payment
With a down payment, even a small one, you can save hundreds of dollars in interest. You’re lowering the cost of your monthly payment because you’re borrowing less to start, and your lender may even charge you a lower APR. A big down payment can also help to offset less-than-perfect credit scores or a lower monthly income. Typically, a down payment is 20% of your loan amount, but lenders accept down payments as small as 10%.
vs.
Buying a car with a $0 down payment
With a no down payment car loan, you’re financing your car without any upfront financial commitment on your part. You’ll sign up for your financing and drive your new car off the lot without paying a penny until your car payments kick in. These loans come with a price though: lenders may quote a higher interest rate when you don’t have a down payment.
You’re also on the hook to pay for title and registration fees, sales tax and other loan fees. If you don’t have a down payment, these fees will be added to your loan, which can make it easy to borrow way more than your car is worth. No down payment car loans are also harder to qualify for because lenders are relying solely on your credit history to decide if you’re a safe bet to lend to.
Why some lenders require a down payment
Lenders prefer that you have a down payment so you have skin in the game, too. They’re looking out for their best interests, which is choosing to provide loans to people who can afford to repay their debts. Ultimately, they don’t want you to owe them more on the car than what it’s worth in case you default on the loan.
Traditionally, lenders will ask for an upfront lump-sum down payment or deposit of about 10% to 20% of the value of the car. You can also trade in your current car to try to come up with the cash.
Why didn’t I get approved for a $0 down payment car loan?
$0 down car financing is more difficult to qualify for, as a lender will need to be sure that offering you zero-down financing doesn’t come with an unacceptable level of risk attached. While requirements vary by lender, you typically won’t be able to qualify if:
You don’t have any credit history. If you can’t demonstrate a history of borrowing money and then making on-time payments to pay off your debt, lenders can’t examine your track record as a borrower, making you a higher risk.
You have a bad credit history. Bad-credit borrowers are viewed as posing a higher risk to lenders, so most will require you to have a down payment saved if you want to qualify for a car loan.
You have negative equity on your current car. If you’ve previously borrowed money to buy a car, and the value of that car is now less than the outstanding balance you owe on the loan, you’re considered to be in negative equity and your lender will likely require a down payment.
The sale price of the car exceeds its value. In some cases, the sale price of the car you want to buy may be well above its value, as might be the case if the vehicle has been modified. When this happens, you may need a down payment to fall within the lender’s acceptable LTV ratio.
Bottom line
If you have good credit, $0 down car financing could help you buy a car today without waiting to save up for a down payment. They’re also a quick-fix solution for people in bad credit situations who need to buy a car but don’t have the upfront funds to shoulder a down payment.
But don’t jump on the first loan you find. Compare rates, terms, fees and other factors of the loan before signing the dotted line to ensure you’re getting the best deal out there.
Frequently asked questions about $0 down car financing
It's possible. Some lenders offer car loans to borrowers who can’t provide traditional pay stubs, though there might be extra eligibility requirements you need to meet. Usually the tough part is proving that you have an adequate, steady source of income.
Documents that can help you prove this include bank statements, Notices of Assessment from the past couple of years, proof of income-producing investments and documents prepared by a licensed accountant attesting to the stability of your financial situation and income. Your lender's actual requirements may vary, but these guidelines should give you a good start on knowing what information might be helpful.
Yes. If you save up a down payment, any loan you apply for will have a lower LTV and therefore be seen as lower risk by a lender. It can also demonstrate your ability to put aside savings and provide proof of your solid financial position.
Yes, many lenders offer pre-approval — even for car loans that don't require a down payment. Getting pre-approval for a specific loan amount can give you leverage to negotiate with your dealer, given that your dealer will know you are in a position to buy. You might also be able to use car loan pre-approval to get your dealer or any other lender to give you a better loan with more favourable rates. After all, why should your interest payments go to a competing lender?
Here's some good news for people with good credit and less-than-perfect credit: there is no minimum threshold to secure $0 down car financing. Ideally, you have a great credit history, which will help you secure much more favourable interest rates and terms; however, many lenders that provide $0 down car financing also specialize in providing financing for any type of credit situation, including no credit, poor credit and bankruptcy.
Yes, you can secure bad credit car loans with a $0 down payment. Some lenders specialize precisely in providing $0 down car financing for any type of credit situation, including no credit, poor credit and bankruptcy.
Your job is to look into these specific lenders that issue $0 down bad credit car loans and compare their loan options, including their interest rates, terms and additional charges.
Carmen Chai is a freelance writer at Finder, specializing in financial products. She is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. She has reported on personal finance, mortgages, and banking products for nearly a decade. See full bio
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