Are you in the market for a new car but are concerned about having to come up with a hefty down payment? Luckily, no money down payment car loan options may be available. These loans allow you to finance the vehicle’s full cost without making an upfront payment.
Let’s take a closer look at no down payment car loans, how they work, and what to consider before taking this route.
Key Points
- A no down payment car loan does not require any money upfront to secure financing to purchase a vehicle.
- With no down payment, you’ll be taking on a bigger loan and assuming higher monthly payments.
- You may need good credit and strong income to qualify for a no down payment car loan.
- Consider the risks of a no down payment car loan, including the increased risk of negative equity and higher overall loan cost.
- Various lenders offer no down payment car loans in Canada, including in-house dealership financing sources and alternative lenders.
What Is A No Down Payment Car Loan?
A no down payment car loan is a type of car financing that lets buyers purchase a vehicle without the need for an initial lump sum payment. Rather than paying a percentage of the car’s price upfront, the buyer finances the entire vehicle cost through the loan.
How Does A No Down Payment Car Loan Work?
A no down payment car financing plan will function similarly to a traditional car loan, except you don’t pay anything upfront. Instead, your loan amount will equal the full vehicle price, plus interest and fees. Then, you’ll be required to make regular installment payments over the set loan term until the loan amount is fully repaid.
However, it should be noted that zero down payment car loans generally require good credit and finances to qualify.
| What is a good credit score to buy a car with no down payment? Generally, a good to excellent credit score (660 – 900) is required for no down payment car loans. |
Where Can You Get A No Down Payment Car Loan?
To see the best results, most experts recommend that you make a down payment of at least 10% – 20% of your vehicle’s final price to keep your payments and debt lower. However, it can be difficult for some drivers to save up that much cash in time. Thankfully, there are plenty of lenders and dealerships in Canada that can offer you a car loan with zero down payment.
Can I Get A No Down Payment Car Loan From A Bank?
No down payment car loans are difficult to find at the big banks. However, CIBC offers such car loans, though you’ll need to have very good credit to qualify.
Can I Get A No Down Payment Car Loan From A Dealership?
Yes, some dealerships may allow zero down through their in-house financing programs. You may need to shop around to see what’s available, and you may need to meet other requirements to qualify, such as a strong credit history and limited or no debt.
Can I Get A No Down Payment Car Loan From An Online Lender?
No down payment car loans are perhaps most readily available from online lenders. Using an online loan comparison site like Loans Canada can help you find lenders in Canada that allow zero down payment, depending on your credit profile and financial strength.
Best Car Loans In Canada
How Do You Qualify For A No Down Payment Car Loan?
Since you won’t be putting any money down on the car loan, your odds of approval will depend on other personal and financial factors, such as the following:
Credit Score
When you apply for zero down car financing, your loan provider may check your credit report and credit score. If you’ve handled your previous credit products responsibly, this will be reflected in a high credit score, which will make you more eligible for favourable loan terms and lower rates.
Learn more: What Credit Score Do You Need For A Car Loan?
Income
When you apply for a car loan, your income and employment status are some of the primary factors your loan provider will inspect. The best way to get approved for good loan conditions and rates is to have a full-time job for at least a few months before you apply, as well as a healthy bank account balance.
Debt
The lender will want to ensure that your current debt load isn’t so high that you won’t be able to fit another loan payment into your budget. Ideally, your debt-to-income ratio should be no higher than 36% to increase your chances of loan approval.
The fewer outstanding debts and liabilities you have, the easier it will be to get approved for a good term and interest rate.
| What is a debt-to-income (DTI) ratio? A DTI ratio is a measure of your monthly debt relative to your monthly income. |
Car Condition And Value
Most lenders won’t offer a car loan for cars that don’t meet their car age and condition requirements. They want to ensure that they’re not lending more than what the vehicle is actually worth.
| Can I Get A No Down Payment Loan With Bad Credit? If your credit score falls within the bad range (300 – 559), it can be much harder to get approved, particularly for a large car loan with no down payment. That said, you may still qualify for a bad credit car loan without having to make a down payment, if your current income, DTI and employment history are in good shape. You’ll also have the best chance of zero-down car financing by working with an alternative lender, though rates may be expensive. You can increase your approval odds and earn better loan conditions by offering your car loan provider a cosigner. |
Learn more: What Is My Car’s Value In Canada? 5 Ways To Find It
What Do You Need To Apply For A No Down Payment Car Loan?
Before applying for a no down payment car loan, make sure you’re prepared for the application process to boost your odds of approval. You’ll need to provide a few documents for the lender to verify your identity and financial health. Documents required may include the following:
- Proof of Identity – Lenders typically require a government-issued photo identification, such as your driver’s license, passport, or health insurance card, to verify your age and residency.
- Proof of Income -You may need to provide your pay stubs and/or bank statements to prove your income. An employment letter may also be requested.
- Credit Check – Most car loans will require a hard credit check. Before you apply, check your credit score to see where you stand. You can do this easily and for free using Loans Canada’s CompareHub tool.
- Vehicle Details – Your lender will need to know what type of car you’re buying so they can confirm its current and future value. Information you’ll have to provide can include the car’s final sales price, make, model, mileage, and Vehicle Identification Number (VIN).
- Debts And Liabilities – Your car loan provider may also ask about your existing debts, such as other unpaid credit products or properties (loans, mortgages, etc.).
How 0 Down Car Financing Will Affect Your Payments
Wondering how much your car loan payments will be with no down payment? Use this car loan calculator to get your monthly payments.
To give you an idea of what a no down payment car loan will cost you compared to a loan with a down payment, let’s illustrate. Assuming a car price of $30,000, a 6-year loan term, and a 7% interest rate, let’s see how much more you could potentially pay for a car loan with no down payment versus a 15% down payment:
| No Down Payment | 15% Down Payment | |
| Car Price | $30,000 | $30,000 |
| Down Payment | $0 | $4,500 |
| Loan Amount | $30,000 | $25,500 |
| Loan Term | 72 Months | 72 Months |
| Interest Rate | 7% | 7% |
| Monthly Payment | $511 | $435 |
| Total Interest Paid | $6,826 | $5,802 |
| Total Loan Cost | $36,826 | $35,802 |
By making a $4,500 down payment, you could reduce your total interest paid by just over $1,000, and lower your monthly payment by about $76. Of course, this is a simple example, and there may be other fees involved. The point is, be prepared to pay more in monthly payments and total interest without a down payment upfront.
Pros And Cons Of A No Down Payment Car Loan
Not having to come up with a lump sum of money when you buy a car can make car buying more accessible. But along with the perks come a few drawbacks that you should consider before choosing a no down payment car loan. Be sure to weigh the pros and cons before making a decision:
| Pros | Cons |
| No upfront costs (all interest and fees are dispersed among your loan payments) | It can cost more to finance (if you have a longer term and larger loan payments) |
| You can buy the car now, instead of later (no need to save up extra money) | You can end up with negative equity (diminishing the resale value of your car) |
| Any money you don’t spend can cover other expenses (fuel, insurance, etc.) | Higher interest rates apply (larger loans are more risky for the lender/dealer) |
| You won’t be risking your own finances by draining your savings | It takes longer to gain positive equity (you must consistently maintain your car’s value with repairs, upkeep, etc.) |
| Approval is based on your income and credit score (higher income and credit score = better loan conditions/rates) | It can be harder to qualify for good loan conditions and rates if you don’t have a strong income or credit score |
Alternatives To No Down Payment Car Loans
If you’re in a rush to buy a car but don’t have the funds needed to make a sizable down payment, then perhaps a no down payment car loan may be worth considering. But if time is on your side or you prefer to have some equity in the vehicle you buy right off the bat, consider these alternatives:
Save For A Down Payment
Even a small down payment can make a big difference on your loan balance, monthly payments, and interest costs. It can also increase your chances of loan approval. If you are not in a rush to buy a car, consider taking a few months to steadily save up for a down payment.
Consider A Co-Signer
If you have a lower credit score, a co-signer with strong credit and healthy finances can help you get approved for a car loan with better loan terms and a more affordable interest rate. Kee in mind that the co-signer would be responsible for taking over loan payments if you fail to make them yourself. This could have a negative effect on your relationship and put the co-signer in a precarious financial situation.
Lease
Leasing typically comes with lower monthly payments compared to financing. You may even be able to find a leasing deal that requires no down payment, though leasing comes with more restrictions.
Look For Deals
Some dealerships offer promotional financing from time to time, such as 0% APR financing. These incentives offset the requirement for a down payment.
Final Thoughts
While a large down payment can make it easier to get approved for good loan conditions and lower interest rates, it can put a lot of unnecessary stress on you and your bank account. In this case, a no down payment car loan may be something to consider, and plenty of lenders and auto dealers offer these types of deals. Be sure to do some comparison shopping with different lenders to see where you can get the best deal on a no down payment car loan in Canada.
