No Money Down Car Loans
No money down car loans do exist however, they are usually available to people with good credit histories. So, what if you have bad credit? Even before the financial crisis of 2008, people with poor credit histories would have had a difficult time finding no money down car loans. One of the limiting factors with bad credit car loans is a lower loan to value ratio – in other words, sub prime lenders finance a lower amount for a given vehicle thereby requiring some sort of down payment from the borrower.
Options for No Money Down Car Loans
If you have good credit, you may first want to check with your bank or credit union. Often times these entities offer no money down car loans to loyal customers with good credit. In addition, if you’re in the market for a new car, check with the manufacturer’s captive auto finance company. Auto finance companies such as General Motors Acceptance Corporation, Ford Motor Credit etc often times offer incentives for people that purchase their brand such as zero percent financing or no money down car loans.
So, what about no money down car loans for people with bad credit?
There is good news and bad news. The severity of your bad credit will determine your options but generally speaking, if your credit score is at least 525 and you have some type of prior credit history, you should be able to get an auto loan. The bad news however, is you will be probably be required to have a down payment. The good news is it’s not as much as you may think.
The typical required down payment for people with bad credit is 10% of the vehicle’s selling price or $1000.00 dollars, whichever is less. So if you purchase a car that is selling for say $8000.00 dollars, you’ll probably need a down payment of approximately $800.00 dollars – not too bad given the circumstances.
Why do lenders require a down payment?
The answer is simple. They want the borrower to have some “skin in the game”. The pay out of auto loan portfolios performs better (customers making timely payments) when a borrower has something to lose if they miss making their payments. As in the case of an auto loan, the car itself serves as collateral for the loan and if payments aren’t made, the lender has the right to repossess the car. In other words, a borrower is more likely to make their car payments on time if they had a down payment in the car because they don’t want to lose their initial investment.
If you’re in the market for a new or used car and have experienced some credit difficulties, plan accordingly and be prepared before you apply for an auto loan. Remember, no money down car loans are generally reserved for people with good credit and if your credit history is poor, plan ahead and save for a down payment.