Can You Buy a Car With No Down Payment?
As Americans, many of us don’t just “want,” a vehicle—reliable, safe personal transportation has become a “need.” Many cities offer fantastic public transportation, with bus and train routes expanding all the time. At the same time, factors such as urban sprawl, development, and the transition of many jobs outside expensive city limits have led to the need to travel beyond standard public transportation limits. For many people, this is a problem with a reasonable solution—simply purchase the car, truck, or SUV that will be best for their job needs, their family, and drive to work. But what if you have bad credit?
What about those who are just starting in the job market, who lack both credit and money to just purchase a vehicle? All of the great deals you see on TV or online for vehicles often require a down payment and financing in order to walk away with a vehicle. As a result, many people find themselves stuck without a vehicle to get them to and from work because they lack the front-end financing or stellar credit to qualify for a loan. Are there any solutions? How can drivers with bad credit break out of this cycle? Can you even get a car without a down payment?
The Basics of Financing
First, let’s look at how purchasing a vehicle typically works. When you see ads for those shiny dream cars, they typically list an MSRP. That stands for “Manufacturer Suggested Retail Price.” You may have heard others say, “never pay sticker price on a car.” The MSRP is what they’re referring to as the “sticker price,” so-called because it’s typically printed on the info sheet for the vehicle.
Regardless of what you pay for a car, generally speaking, the amount you spend is going to be more than the cash you have in your pocket. That’s where financing comes into play.
You can choose to finance the vehicle through a financial institution of your choice, or you can check out available financing through the dealership. Some dealerships are able to take a look at your credit and income, and much like an independent financial institution would do, offer to loan you the cost of the vehicle, in exchange for monthly payments.
Monthly payments are broken into two parts: principal and interest. The principal is the amount that you actually owe on the vehicle, while interest is a payment made to the lending source for the cost of lending.
Your credit rating, current income, and down payment will impact the amount of the overall payment. The better your credit rating is, the lower that interest rate tends to be. That’s because the lending source sees you as less of a risk. Many lenders also feel that having a regular income that works out to a certain percentage of the vehicle price will lead to a higher likelihood that you’ll make timely payments in full. Additionally, the larger the down payment you make, the lower the principal, and thus the less you owe overall.
Can you get a loan without a down payment? It is possible. A down payment is typically required to ensure you’re going to pay at least something on the vehicle before it leaves the lot. It’s a promise that, while you aren’t making a full payment today, you are starting the process of paying on that vehicle. Most dealerships require around $1000 or 10% of the selling price; however, this can be in the form of cash, trade-in, or a combination of the two.
That being said, there are plenty of situations in which a prospective car buyer might not be equipped with either that stellar credit rating or a large sum to put down on the vehicle. For young drivers, having no credit works about the same as having bad credit, too—you’ll still be seen as a financial risk because you don’t have that long history of making bill payments on time.
So what can you do in these cases? While bumming rides and using ride-share services for a while can provide a temporary solution, this isn’t an appealing long-term solution for most of us. There are a few options that will allow you to purchase a car, even with bad credit.
Option 1: The Cosigner
Young and new drivers tend to choose the cosigner option, as this buys time while these individuals build up their credit, get started with a new career and establish that steady income, or take care of some dark marks that occurred in the past.
Cosigners simply share the overall responsibility of the car payment and ownership. Adding a cosigner may not lower your overall interest rate, as one person will be primary on the loan. Bear in mind that being or having a cosigner is not a position to be taken lightly, either. Whenever a payment is missed, this impacts the credit not only of the primary but of the cosigner as well.
Option 2: Shop Around
Financing can be done through a variety of institutions. Check around with local credit unions, banks, and auto dealerships. Do the research and look into what current auto loan rates are, based on your location, your income, your credit rating, and any down payment you might be able to scrounge up.
Not only should you check around with brick-and-mortar lending institutions, but check online, as well. Online car loans exist in this day and age, and many have a very simple pre-approval process. Pre-approval does not mean that you are automatically qualified for the loan—you’ll still need to complete the full application when the time of purchase arrives—but this process will let you see what amounts and rates you’ll qualify for.
Option 3: Buy Here, Pay Here
Some car dealerships pride themselves on being able to finance any prospective buyer, and for those with bad credit, this might be the best option.
The Buy Here, Pay Here model is a great option for shoppers who have found themselves in a tight spot but are on the way to improving this situation. Dealerships that provide this option take great care to create an atmosphere in which more prospective buyers are able to drive away as quickly as possible.
First, they offer vehicles at a variety of price points. This means buyers with bad credit have more options for their budgets. Next, they have a “guaranteed financing” process. This may be a separate application or an online application that must be completed before heading to the dealership. Be sure to check out any potential options and their requirements; additional documentation may be necessary, too.
One thing to bear in mind is that interest rates from Buy Here, Pay Here financing might be higher. This is not because these dealerships want to overcharge or make more money from people with bad or no credit. The truth is that these types of loans are considered high risk, and the higher interest rate is in place to accommodate money lost on previous loans.
The good news is that taking out this type of loan and making your payments on time can go a long way towards repairing your credit. The best way to prove that you are in a position to take on future lower interest loans, mortgages, and credit cards, is to make regular payments on your current expenses. Paying off a high-interest rate car loan tells future lenders that you’ve recovered from a bad patch, and you’re ready to take on new financial responsibility.
At McCluskey Automotive, we are proud to offer loans to people building/rebuilding their credit score. We understand that everyone has to start somewhere and that people hit hard times, so we offer in-house financing to improve your credit or get you back to where you need to be. You can find us at one of two locations; the first is at 9024 Colerain Avenue in Cincinnati, our second location is at 8525 Reading Road in Cincinnati.