No Money Down Car Loan: Requirements

May 26, 2016
Car Loan Application

Purchasing a car with no money down might sound too good to be true, but many dealers, banks, and credit unions allow you to do that just. All you need is good credit and verification that you earn enough to pay back the loan.

In general, you'll need a FICO score of at least 700 to qualify. Additionally, you'll need to be paying a good price for the vehicle in question—at or below the Kelley Blue Book value or the equivalent. If you're paying too high a price, you may get no-money-down financing at the dealership that is charging you that price, but you won't get it from any other financial institution.

If you have a trade-in, it's even easier to get a no-money-down loan from the dealer, since they can easily manipulate the amount they give you for the trade-in to make it a profitable deal for them. In times of tighter credit, financial institutions may have stricter guidelines.

You'll be required to produce the standard auto loan paperwork, regardless of your credit score. This means you'll need your last two pay stubs, which must include the total you've earned year to date. If you're self-employed, bring tax returns for the past two years. It's a good idea to review your credit report yourself before applying for the loan. If there are any errors affecting your score, now is the time to get them corrected. Don't wait until the lender runs your report to see if there are issues.

You'll also need to provide your lender with the VIN, purchase agreement, and mileage. Before disbursing the loan, your lender will also need the title and proof of insurance.

One word of caution: New cars depreciate quickly, so it's easy to get "upside down" in a no-money-down loan (meaning you owe more than the car is worth). If you get into financial difficulty and need to sell it, the proceeds from the sale won't be enough to pay off the loan. You'll have to make up the different out of pocket. Some lenders will allow you to take out an unsecured loan for the difference, but this usually requires an excellent score and even then is solely at the lender's discretion.

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Loan approval is not guranteed and is subject to credit application and approval of the lender. Individual loan terms may vary.