No Money Down Car Loan: Requirements

March 18, 2013

No money down car loans are mainly meant for individuals with good credit. Learn about the benefits and precautions to take with a money down car loan.

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If you are looking for a no money down car loan, you may wonder what the requirements are for getting one. No money down loans are generally used by those who can't afford a down payment, those who have a car to trade in, or those who don't want to tie up their cash in a car that depreciates. They'd prefer to invest the cash in appreciating securities.

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Good Credit, Easier Loans
Many car dealers have no money down programs for buyers with good credit. This adage also holds true for many banks and credit unions as well, so you can buy a car from a private individual and still pay no money down.

In general, you'll need a FICO score of 700 or more 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 are paying too high a price for the vehicle, 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 for giving out no money down loans.

Standard Paperwork
In order to get a no money down auto loan, 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 for the year. If you are self-employed, bring tax returns for the past two years. The institution will look at your credit report, so it's always good to review it yourself prior to looking for a loan.

You'll need all the important information about the vehicle, including the VIN, the purchase price on a buyer's agreement or dealer sheet, the year, make and model, and the mileage. When you're ready to get the loan, not just a quote, you'll need the car title and you'll generally need proof of insurance.

Bad Credit
If you have bad credit, you may have a more difficult time getting a no money down auto loan.

One requirement of this kind of loan will likely be paying a higher interest rate than you would if you were making a down payment. Another requirement will be paying a price for the car that is in line with the value of the car. Since a no money down loan has a greater chance of default, the lenders do not want to be stuck with a car that is worth less than the loan amount should they need to repossess the car.

You may be required to have a co-signer on a loan where you are not prepared to make a down payment. Another possible requirement is clearing up any negatives on your credit report. You should request the free copy of your credit report that you are allowed by law to receive each year. If there are negatives on the report that you feel are in error, begin the task of fixing them before you attempt to buy a car.

CarsDirect specializes in bad credit car loans. Just fill out an easy application and you will be on your way to getting approved.

Be Careful of Buy Here, Pay Here Dealers
Often used car dealers that specialize in selling to people with little credit call themselves "Buy here, pay here" dealers. These lots make much of their money from the financing of loans, not just the sale of the vehicle. Don't simply walk into this kind of a lot without researching it and plan to purchase a car that day. Look online, ask friends, call the Better Business Bureau and find out what kind of business they are.

There are many ways these dealers may take advantage of someone in a difficult financial situation. For example, most no money down car loans will carry a higher interest rate than the normal car loan. However, the "buy here, pay here" dealers sometimes charge a much higher rate—8 or 10 percent or even more above the going rate.

They can also have very aggressive repossession policies and little leniency in late payments. Check these things out before buying. Use online payment calculators to see what kind of a payment you can afford before you go into a dealer or apply for financing online.

Possible Problems if You Need to Sell the Car
Because cars do depreciate quickly, it is easy to get "upside down" in a no money down loan. Being upside down means you owe more on the car than it is worth if you sold it. This causes a problem for you if you want or need to sell the car before the loan term is over.

If you get into financial difficulty and want to sell the car to get rid of the car payment, you're not able to do so. If you sell the car and the amount you get doesn't pay off the loan, you will still owe the difference. Additionally, if you sell the car but are unable to pay off the balance, the lender will have to agree to surrender the title of the car to the buyer and convert the remaining balance to an unsecured loan. They are often unwilling to do this for people with a poor credit rating.

Consider the above information and decide if a no money down loan is right for you.

No Money Down Loan Options on the Web
The best way to find out if you can get an online loan with no money down is to go to Eloan.com, LendingTree.com, Bankrate.com or another aggregator and enter your information to see what kind of terms and rates you are presented. You will quickly see if your credit history and the car you are purchasing allow you to make a no money down car purchase.

If you have trouble with a general loan, then you can try for a specific automobile and try for a loan through the company offering the vehicle. For example, go to Cars.com, find a specific vehicle, and apply for a no money down loan through the site. Cars.com may refer you to their partner, Up2Drive, but either way, you have a better chance of getting a loan if the company profits both by selling you the car and offering you the financing.

Be a Smart Shopper
Just because you are looking for a no money down car loan doesn't mean you have to accept the first deal you are offered. You can't afford to fall in love with one specific car if you have poor credit. You will need to shop around and find the best deal.

Get the written agreements and take them home to study. Be sure you clearly understand the terms of the agreement before you sign. You may want to ask an attorney or paralegal to look over the documents first. Make sure you understand the terms, the payments, the length of the loan, the late penalties and other details.

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Related Questions and Answers

What is an Upside Down Car Loan Trade In?

An upside down car loan trade in simply means that you are upside down on your loan and are hoping to trade in your vehicle. If a loan is upside down, this means you owe more on the car than it is actually worth. When you are in this situation, it can be difficult to trade in a car. The best way to resolve this issue is to pay down your loan until you owe less than it is worth. While many dealers will take a trade in that is upside down, the balance owed on the old loan will just be tacked onto the new loan.

What is the Maximum FICO Score You Can Get?

The maximum fico score is 850. There are very few people that actually achieve this score. The majority of people with really excellent credit top out at around 825. VantageScore, which is another credit rating agency has a top score of 990. Your credit score is extremely important to getting an auto loan. In most cases, you will need a score of at least 640 in order to qualify for a prime loan which will carry the best interest rates. If you are below 640, you will be looking at sub-prime loans. These loans have a higher interest rate. Using a co-signer with good credit or coming up with a large down-payment can help lower your interest rate.

How is the New FICO Score System Different from the Older One?

The new FICO score differs from the old one in a number of ways. The first is that it no longer takes into consideration accounts that you are an authorized user on. If you are a user on a card that your wife, husband or other person is the primary cardholder, the payment history of that account will no longer count against you. The new FICO is more forgiving of the occasional slip. If you are late on one card, but have been paying your other bills on time, it will not effect your score much. Finally, it will give more points to people who have a variety of different debt or credit types.

What Does FICO Score Mean?

One often wonders, 'What does a FICO score mean?'. FICO stands for Fair Issac Corporation. This is the company that developed the original credit scoring reports. It was founded by a mathematician named Earl Isaac and Bill Fair. A FICO score is used by finance companies, banks and other lenders to determine the creditworthiness of borrowers. Your FICO score is very important when it comes to getting a car loan. Your score is determined by a number of factors. Your payment history is the biggest factor in a FICO score, so it is important to make sure you pay all bills on time.

What is the Easiest Way to Increase Your FICO Score?

There is no quick and easy way to increase your FICO score. It takes time and effort to bring your score up. The most important thing you can do is start paying all of your bills on time. Keep all accounts current. If you have missed payments, bring the account up to date and keep it current. Review your credit report and make sure there are no errors on it. If there are, contact the lender to get them corrected. If you carry lots of debt, pay it down. Carrying low balances on a couple of cards is fine as long as you make your payments on time. Remember, raising your score will take time. Often a year or more.

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