Buying a car is a significant investment, which is why potential buyers often look for financial assistance with this big-ticket purchase. When opting for traditional loans, borrowers are expected to have a good credit score. Plus, they must pay a certain amount upfront before getting the loan. Conversely, financing options become limited for those with a less-than-ideal credit score. But, there are ways to buy a car with bad credit and no down payments.
1. Shop around to find multiple lenders
Before purchasing a car with bad credit and no down payment, shop around and compare multiple lenders. There are several lenders beyond traditional banks that offer auto financing options for individuals with bad credit, eliminating the need to make a down payment.
Credit unions
If one has a pre-existing membership with credit unions, these are the best places to start seeking auto loans when credit scores are low or if one wants to avoid making a down payment. This is because some credit unions are willing to give discounted rates and approve loans based on an established history with them.
Online lenders
They are a convenient alternative because most online lenders offer pre-qualification loans. This allows borrowers to check the various terms they might be eligible for before applying for the loan. The eligibility criteria often include factors other than credit score, such as employment history, income, and education.
Car dealerships
When other alternatives don’t work out, asking the dealership for a financing option can be a good idea. The qualifying criteria are not quite stringent, so one can get a loan even with a low credit score. But the interest rates can be higher, and loan terms can differ from those of traditional lenders since dealerships typically look for avenues to make more money.
Buy-here, pay-here dealerships
This is similar to leasing but involves higher interest rates. A dealership will have its own contract with terms and conditions that a car buyer has to comply with while purchasing the vehicle.
2. Get pre-qualification from several lenders
With pre-qualification, it is possible to check for the loan and eligibility terms before applying. This is a good way to save time and prevent hard credit checks that can temporarily reduce one’s credit score. After pre-qualifying, it is crucial to compare the various rates to find the best deals. Once this is done, submit all the documentation and get pre-approvals on the top loans. While this may involve a hard credit check, a pre-approved loan often means one will get the loan amount successfully.
3. Trade in an existing vehicle
If one has an old vehicle, it becomes easier to get a car with bad credit and no down payment. Simply trading in the existing vehicle can prove useful in covering a good percentage of the cost of the new vehicle. This way, the total cost of the loan will be lesser. Plus, the trade-in value can be used as a down payment too. While the old car’s value may have depreciated, it is possible to earn significantly more if the car is in good shape. To ensure this, have the vehicle examined by a professional and repair everything that is causing the warning lights on the dashboards to be on. It is crucial to follow this step before taking the old car to the dealership for appraisal.
Additionally, it helps to research the general market value of the car to ensure that one gets the maximum trade-in value. For this, one can check out multiple industry guides that have updated values of the various models and trims of cars from all manufacturers. With this information, one can easily negotiate the best price for their old car. If a dealership is unwilling to give the maximum price, consider selling it privately to get the best deal.
4. Look for loan terms instead of monthly payments
Generally, lower monthly payments seem good on paper. But often, these payments are associated with longer terms. So, one may end up paying more for the new car throughout the loan term. Since most car loans for bad credit involve more fees and higher interest rates, one will pay a significantly higher sum over the entire loan term. So, when shopping around for a loan, check for the ones with favorable loan terms, such as a low annual percentage rate (APR) over a short period. Ensure that the overall monthly payments are within one’s budget. In such situations, pre-approval and pre-qualification generally come in handy.
5. Get a cosigner
One of the best ways to get guaranteed auto loans with bad credit and no money down is to have someone on board as a co-signer. A cosigner is an individual who is legally obliged to assume responsibility for missed payments or repay the complete loan in case the primary borrower is unable to do so. For this, it is important to have a cosigner who has a strong credit profile. This can help one get an auto loan with no down payment and a relatively low interest rate.
6. Make payments using a credit card
Some dealerships accept credit cards for down payments. While it is not ideal to increase debt associated with credit cards for a down payment, it can be the right alternative in certain circumstances. For instance, if the car is required for work purposes, using an employer-issued credit card might be the only way to get a loan approval. But, this may incur some additional costs since fees are charged when credit cards are used for such big-ticket purchases.