Everything You Need To Know About No Money Down Car Loans

Posted by on August 10, 2019 @07:21:52 EDT

When it comes to car loans, sometimes it can feel like everywhere you turn there’s a new option just screaming out to be heard. We’ve all been through the expensive and tiring gamut of interest rates, credit scores, loan lengths, and the critical question of secured vs unsecured loans.

Who among us hasn’t spent at least one sleepless night in front of our computer with a calculator in our other hand, trying to figure out a way to balance the books so that we’ll be able to make a big enough down payment on the next loan we’re planning on taking on? Or even how we’ll make the next set of monthly repayments on loans we’re already committed to?

It’s a minefield out there, as we’re sure you’ll agree. There are too many options to count, and too many ways to work around the options that when you get down to practicality, the list of ways you can finance a loan can wind up looking just about endless. We’ve got the financing scheme itself to consider, which is going to vary depending on our credit score—which itself is going to vary depending on our recent credit history and whether we can be relied upon to pay back our debts in full and on time.

Budgeting Constraints

A man working in front of a computer screen displaying a graph.

Then you have to try and figure out how much wiggle room you’ve currently got in your monthly budget to leave for monthly repayments. From there, you need to somehow work out how much financing you can qualify for: this itself is no easy job and can be the work of an entire afternoon at the very quickest. Next, you need to perform the critical stage of working out how much of a down payment you can afford to make on the loan. Finally, you’ve got to shop around to different dealerships in search of the best possible car loan that you can make work, given your current circumstances.

While every step of the process is crucial to the overall scheme of securing a car loan for yourself, today’s article is going to focus on the part of it which often gets overlooked, and can be seen by some to pale in comparison to more nitty-gritty details like the interest rates or the length of the loan. There are any number of articles on the internet about how to go about planning which interest rates are going to be feasible, or how long your loan should ideally be. But down payment is often ignored in the grand scheme of things, which is silly because they’re so critical to the overall car loan deal.

No Money Down Deals

Even more enticing and mysterious is the no money down car loan deal. We’re sure you’ve seen the sign up at your local dealership, and it probably looked too good to be true. After all, what kind of sense could that possibly make? In what world can you qualify for a loan without needing to make any kind of down payment? Is that even legal? Can it work for you?

The short answer is yes, it’s legal, and yes, it can work for you. But the circumstances in which it’ll be a good idea are specific indeed and can be too tricky to sketch out for each individual buyer just trying to get approval for a car loan. So this article is going to give you a rundown on how, exactly, these mysterious no money down car loans work.

First of all, we’re going to break down what a down payment is and why car dealerships ask for one. Next, we’ll talk about the benefits and negative aspects of a no money down car loan, before explaining how to tell if you qualify for it or not.

Without further ado, let’s get going. Here’s everything you need to know about a no money down car loan.

What Is A Down Payment, Anyway?

If you were to come up with a way to describe what a down payment is, it’s not a million miles away to say that it’s half of how you pay for your new car. Which is not to say that it’s half in terms of 50% of the overall price; rather it’s one of two functions that work to afford the overall value of the car. The other, naturally, is the financing scheme itself.

The more you can put down on the loan in the first place, the less you’ll have to pay back in your loan. For example, if you’re buying a car for $30,000, you might put a down payment of $7000 on the car, meaning you’ll only have to repay $21,000 (plus interest) over the course of the car loan instead. While this can sound a little intimidating, it really shouldn’t: you can even think of it as a way of paying back some of the money without interest.

While down payments are typically made in cash, there’s no hard and fast rule about how they have to be made, just like there’s no way to tell in advance which is the standard down payment price point the dealer in question will be working with when it comes to helping you finance your car loan. A common form of making down payments is by trading in the car you’re currently driving. The dealer will estimate its value and take that total cost out of the overall value of the car you’re looking to buy, effectively treating it as a lump sum of cash. Dealers don’t always give you the best trade-in deals, however, so if you’re able to sell it privately to somebody else who you’ll know will give you a better price for it, that could be a good idea.

Credit Scores Make The Difference

Leather wallet with credit cards.

One common misconception is that down payments are a way to counterbalance the risk taken on by the lender in the process of approving somebody with a poor credit score for a car loan. This couldn’t be further from the truth, and although it’s an easy mistake to make, we’re here to clear up the misunderstanding. Think about it: credit scores are reflections of the history you have of being true to your financial commitments. If your credit score is already excellent, the dealer has every reason to think that you will indeed be able to commit to the loan and keep up your end of the bargain. This isn’t always the case with worse credit scores, however.

That’s where down payments come in in the first place. If the given person has a bad credit score, they’ve not been too reliable in the past when it comes to keeping up with their payments. In those cases, for the dealer to see a sizeable down payment means that they’re sure you’re going to be in this car loan for the long haul, and you’re not going to default on it and leave them hanging high and dry.

Another benefit of making a down payment is that it often works in a negative correlation to the amount of money you’ll have to pay back every month to finance the vehicle. That is, the bigger the down payment is, the smaller the monthly amount is going to be. This is why dealers like seeing bigger down payments: they know you’re reliable (and the more you put down, the more reliable you’re going to seem), so they have no reason to charge you the absolute highest rate.

So what’s the big deal about a no money down car loan in the first place?


The main plus is that it means you don’t need to part with any lump sum of cash. If all you’ve got is an emergency fund, for example, that’s hardly something you want to be parting with just to secure a car loan. Similarly, if you need a certain amount of cash liquid for whatever reason, you’ll be glad that you didn’t go for the no money down car loan when the time comes.

Another bonus is that it will go down on your credit history as another big tick, proving that you know what you’re doing when it comes to financing. Granted, this has less to do with the specifics of the car loan itself than it does with the inner workings of the credit system, but the point still stands.


Unfortunately, there are also a fair few downsides to putting $0 down on a car loan. For starters, the interest rates are usually higher than they would be on a loan with money down because even though you have a good credit score and are a reliable buyer, they don’t have that lump amount of cash to offset the risk they’re taking on.

An even more bizarre issue is one that happens all the time—you may find yourself paying more than the car is worth. Sounds strange, right? But it makes sense once we remember that cars depreciate in value the second the wheels start spinning. By the time you’ve finished paying off your loan, it could well have dropped so much in value that you wound up paying more than it’s even worth. Obviously, this isn’t an ideal situation for anybody to find themselves winding up in.

Qualifying Criteria

Paperwork lying flat on a table.

To qualify for a no money car loan, the lender is going to look at two main factors, considered in relation to the vehicle you’re considering buying. It’s important to be in good financial circumstances. The first requirement is a good credit score: typically above 600, but sometimes even higher than 650.

If your credit score checks out, they’ll then have a look at your monthly budget, as a way of checking if this payment could even feasibly work out, once you’ve paid your other monthly commitments. Remember that if you do qualify, you’ll likely have to put up with much higher interest rates than you would experience with a regular, down payment included car loan.


Whether or not there are more pluses than minuses when it comes to no money down car loans is obviously going to be heavily dependent on your own financial situation, as well as needing the requirement of an excellent credit score to even qualify for a no money down car loan in the first place. We can’t tell you whether or not it’s a good option for you, but at least you can always refer back to this guide if you’re confused about any aspect of no money down car loans.

If qualifying for a no money down car loan is the last of your worries and you’re stressed about your chances for getting approved for any type of loan on account of a poor credit score, we here at autoloans.ca are ready to help. No matter what credit score is written on the top of the page, we consider each and every application for a loan we receive, so why not send us an email and at least find out if we can help you out in your current circumstances?

Let's Get Started

Join thousands of Canadians who have trusted AutoLoans.ca.

Get Approved Now