Budget Matters 101: Buying A Car for Sale with No Money Down

If you’re in the market for a reliable vehicle but find yourself low on cash, you might be wondering if you can make a car purchase without a down payment. The truth is, while paying no money down can feel like a desirable option, doing so can be a slippery slope of debt and isn’t always recommended. From sky-high interest rates to difficulty negotiating terms, financing a whole vehicle purchase can oftentimes feel like making a deal with the devil. However, here at Rainbow Motors, we can definitely offer a few tips for getting approved for a car with no money down and lower rates, such as getting a co-signer, increasing your credit score, and (unfortunately) lowering your standards in terms of what you’re looking for in a vehicle. Here’s an overview of everything you need to know about buying a car with no money down.

Getting Approved for No Money Down Financing

Boost Your Credit Score

If you’re hoping to get approved for a 0 money-down auto loan, having a good credit score is the best way to ensure you get a lower rate from lenders. Credit scores of 680 or above increase your likelihood of securing a car loan without a down payment and avoiding elevated interest rates. Ratings falling between 580 and 669 are categorized as subprime. In the case of a subprime score, it's still possible to obtain a car loan with no down payment, but you should anticipate a higher interest rate. Unfortunately, scores below 580 mean you may not get approved for financing at all.

Consider a Co-Signer

Having a co-signer with a strong credit score and financial history is another option that can help you get approved for a vehicle while paying no money down. The best candidate for a cosigner will be someone you know with a high credit score of at least 750 and is known for consistently paying mortgages, credit cards, car loans, etc., while incurring little to no debt. However, be forewarned that using a cosigner to get a car loan does have some downsides to consider. Failing to make payments on time or defaulting on them is likely to result in a decrease in not only your own credit score but that of your cosigner as well. Additionally, relying on a cosigner can potentially put a strain on your relationship, possibly leading to conflicts. This could manifest in ways such as them feeling entitled to the vehicle or harboring resentment if you don't meet your loan obligations. If you decide to have a cosigner, it's advisable to maintain well-organized records to help prevent disputes and disagreements.

Demonstrate Stable Income

Lenders lower interest rates for borrowers who have steady jobs or regular monthly income, who have lived in one place for at least a year, and who have a good credit history. They want to see that you have a stable source of income to make monthly payments and feel confident that you won’t default on your loan. Be prepared to provide proof of your income, such as pay stubs or tax returns, possibly going back at least 3 to 5 years.

Why Budgeting Matters

Although it's possible to obtain a car loan without a down payment, it's advisable to consider making one if you're able. Even a small amount helps! Failing to provide a down payment can potentially result in an "underwater" situation on your loan because car values depreciate rapidly. Typically, a down payment of 10-15% is sufficient. In fact, in 2019, the average down payment made by car buyers was 11.7%, mainly due to the rising costs of vehicles. The more money you can contribute as a down payment, the better your chances of securing a lower interest rate, which can lead to significant long-term savings. 

Here at Rainbow Motor Sales in Coldwater, MI, we specialize in bad credit financing and believe that everyone deserves a reliable vehicle, no matter what their financial status is. Browse our inventory of affordable used vehicles and contact our finance team to help you know your options! With our finance-first approval process, we can connect you with quality vehicles you’re guaranteed to get!