The 4 Best Auto Loans for Bad Credit With No Down Payment
If you have bad credit and can't afford a down payment, financing a car through a lender that offers no-money-down auto loans could help you get the wheels you need. These loans typically come with very high interest rates, however, so it's important to shop around for a deal you can afford.
Best Car Loans for People with Bad Credit and No Money Down
When you have bad credit and need to finance a new car, having a sizable down payment is often an effective strategy for getting an auto loan. Unfortunately, not everyone has the budget to make this happen.
There are a number of lenders that offer auto loans to people with bad credit, but they almost always require a down payment or trade-in. There are also lenders and dealerships that advertise no-money-down loans, but these offers are typically only available to borrowers with a credit score of 700 or above.
However, a small subset of lenders offer no-money-down financing to people with low credit scores. These lenders usually base their lending decisions on other factors, such as income and employment status.
If you have bad credit and can't afford a down payment on a new vehicle, here are four options to keep in mind when shopping for a car loan.
1. Auto Credit Express
Auto Credit Express specializes in auto loans for people with bad credit, and will even work with borrowers who have a bankruptcy in their past. To get an auto loan with no money down, you'll need to meet some basic criteria, such as a guaranteed minimum income of $1,500 per month.
While Auto Credit Express offers car loans to people with bad credit, the company states explicitly on its website that most borrowers will need a down payment to qualify.
However, Auto Credit Express also helps facilitate what it calls special financing. These are car loans offered by dealerships that accept borrowers with subprime credit scores and no down payment or trade-in.
A subprime credit score is anything falling between 300 and 500. Generally, borrowers with a score in this range can expect to pay the highest interest rates when financing a new or used vehicle.
To apply for special financing through Auto Credit Express, you simply fill out an online application and submit it through the site. From there, Auto Credit Express will match you with local dealerships willing to offer you a car loan based on your financial information.
One of the drawbacks of Auto Credit Express is that it doesn't offer private seller financing. To get a no-money-down car loan through the site, you must finance with a dealership.
2. Capital One
Through its Auto Navigator tool, Capital One matches borrowers with dealers that offer car loans to people from a wide variety of financial backgrounds. With 12,000 dealerships in the Auto Navigator network, you may be able to find a dealer willing to give you a no-down-payment loan.
One advantage of using Auto Navigator to find a car loan is that it lets you prequalify without racking up hard credit inquiries that can lower your credit score. Prequalifying isn't the same thing as qualifying for a car loan, but it can give you an idea of your options based on your credit score and other financial info.
While it appears that Capital One only finances no-money-down car loans rarely, several online reviewers say they were approved for a loan without a down payment. In one review, for example, a borrower says they were able to finance through Capital One with $0 down by proving they had a second job that provided an additional source of income.
On the downside, Capital One sets several limitations on the types of car loans it's willing to finance. To finance a vehicle, your car can't be more than 10 years old or have more than 120,000 miles.
There are also minimum income and loan requirements for financing a car through Capital One. To qualify, you must earn at least $1,500 a month and in some cases $1,800 per month.
Capital One also requires a minimum loan amount of $4,000, and it doesn't finance auto loans in Alaska or Hawaii.
RoadLoans offers bad credit car loan financing, and it sometimes approves no-money-down auto loans for people with low credit scores. It even works with people who have a past bankruptcy as long as the bankruptcy has been discharged and the borrower is no longer paying on any debts related to their case.
RoadLoans is a direct-to-consumer lender that approves loans offered by a network of 14,000 car dealerships. Unfortunately, it doesn't operate in Alaska, Hawaii, New Hampshire, Mississippi, or Nevada.
While RoadLoans says it sometimes offers no-money-down car loans to people with bad credit, it's careful to state that even a small down payment is preferable to nothing at all. To improve your chances of getting approved for a loan, it's best to come up with some kind of down payment, even if it's only a few hundred dollars.
Other loan requirements include a minimum $1,800 a month income. The minimum loan amount through RoadLoans is $5,000, and loans are capped at $75,000.
4. Buy-Here Pay-Here Dealerships
If you visit a lot of car dealerships, you'll probably see some advertise buy-here, pay-here car loans. This means the dealership offers in-house financing that doesn't involve a bank or other third party lender.
Generally, these types of dealerships cater to people with bad credit, and they may be willing to finance car loans for people who can't afford a down payment. In some cases, they don't run a credit check, which means a person's credit history isn't a factor in the lending decision.
However, there are drawbacks to getting a car loan from buy-here, pay-here dealerships. To offset the high risk of offering financing to borrowers with bad credit and no down payment, these dealerships typically charge some of the highest interest rates in the industry.
Before you finance a car through a buy-here, pay-here dealership, it's important to look over the terms and conditions carefully. Because these tend to be high-interest loans, it's in your best interest to run the numbers to make sure you can afford the monthly payments.
How to Get Approved with No Money Down
The reality is that no-money-down car loans with bad credit are difficult to come by. In most cases, lenders will want to see some kind of down payment to mitigate the risk they take on by financing a loan for a borrower with a bad credit score.
However, you may be able to negotiate a no-money-down loan by pointing out other factors that make you less of a credit risk.
Reliable income - If you have a steady income, this can show the lender that you have the money to make your monthly payment on time every month. The more you earn, the greater your chances of getting approved for a loan.
Long-term employment - Lenders like to see that you have a stable income. If you've been at your current job for a long time, this helps show that you have a regular source of money coming in.
Low debt - Even with a bad credit score, lenders may still consider you for a car loan if you can show that you have little to no debt. This shows that your budget can handle a monthly car payment.
Be willing to sign up for automatic payments - Some lenders are more likely to work with you if you agree to have your car payment automatically deducted from your bank account.
Steady residence - You can also show financial stability by proving that you've lived at the same residence for a long period of time. When you shop for a car, have your apartment rental agreement or mortgage statements handy so you can prove length of residence.
While any one of these factors alone might not be enough to convince a lender to work with you, taken together they might be enough to tip the scales in your favor. It never hurts to ask, so be prepared to negotiate to get the deal you want.
Small Down Payments Can Have a Big Impact
When you're short on cash, the prospect of coming up with a down payment for a car can seem daunting. However, a little can go a lot farther than you might think.
Depending on how much you're borrowing, you probably don't need thousands of dollars to get approved for a car loan. In some cases, even a few hundred bucks can make a difference.
Many financial experts recommend putting down at least 20 percent, as this reduces the amount of interest you'll pay over time. However, many people can't afford to put down this much.
According to Edmunds, the national average down payment in 2019 was around 12 percent, and many borrowers put down even less. When you run the numbers, it's easy to see how even a modest down payment can make a difference.
For example, assume you want to buy a car worth $20,000, and you get a loan with a 9% interest rate financed over 60 months.
With no money down, your monthly payment would be $415 per month, and you'll pay $4,900 in interest. By contrast, if you put down $2,400 (12 percent), your monthly payment drops to $365 a month, and you'll only pay $1,900 in interest — a savings of $3,000.
Now assume you put down just $500. While this might not seem like a lot, it can still help you save on interest.
With a $500 down payment on a $20,000 loan at 9% over 60 months, your monthly payment would be $405 per month. At the end of your loan, you would have paid $4,300 in interest, which is a $600 savings compared to a $0 down payment for the same loan.
Understand the Math Before Signing
Before you sign the dotted line on an auto loan, it's important to understand all the terms and conditions. This is especially true when you have bad credit and thus have a greater likelihood of getting a loan with a high annual percentage rate (APR).
The majority of auto loans use simple interest rather than compound interest. With simple interest, you only pay interest on the principal, which is the amount of money you borrow.
However, most car loan interest is also amortized, which means you'll pay more interest at the start of your loan and then less as time goes on. This is why it helps to have a down payment that can help lower the amount of money you need to borrow.
When you're ready to start shopping for a car, it's helpful to run the numbers using a car loan calculator. You can find a variety of simple loan calculators online.
By using an auto loan calculator, you can see exactly how your interest rate affects your monthly payment. You can also see what kind of down payment or trade-in you need to make your payments more manageable.
For example, the Cars.com loan calculator is straightforward and easy to use.
Car Loans with Bad Credit No Money Down FAQs
The following are some of the most commonly asked questions and answers regarding bad credit no-money-down auto loans.
Can I Get an Auto Loan with No Down Payment?
Even if you have bad credit, it may be possible to get an auto loan with no down payment. Realistically, however, your chances of getting approved are much higher if you can put down at least a few hundred dollars.
Whether you have a down payment or not, it's important to shop around. Compare lenders and dealerships to see which option best fits your budget.
If you're struggling to get approved for an auto loan without a down payment, you can also consider adding a co-signer. If you know someone with a good credit score, having them co-sign your loan can help improve your odds of getting approved and may even help you get a loan without a down payment.
You can also try financing through a buy-here, pay-here dealership, as many of these dealers offer no-money-down loans to borrowers with bad credit or a past bankruptcy. If you go this route, however, you should make sure you can truly afford the payments over the life of the loan.
Can I Get a Car at CarMax with Bad Credit?
CarMax offers financing through CarMax Auto Finance as well as a variety of third party lenders. According to its website, CarMax works with borrowers who have a wide range of credit profiles, including those with low credit scores.
There are plenty of banks, credit unions, and car dealerships willing to work with borrowers with less than perfect credit, and some of them even offer no-money-down loans to people with low credit scores. If you need this type of loan, it's best to thoroughly review the terms and conditions to make sure you can keep up with the payments.
About the Author
Mike is a recognized credit expert and founder of Credit Takeoff. His credit advice has been featured in CNBC, Investopedia, CreditCards.com, Bankrate, Huffpost, The Simple Dollar, Reader's Digest, LendingTree, and Quickbooks. Read more.