Car loans with no down payment

How good-credit borrowers can secure financing without putting money down.

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There’s one common question many new car buyers have asked when searching for their next set of wheels: Can I get a car loan without a down payment?

The good news is that the answer is a resounding yes. There are many lenders that offer zero-down car loans — but you might have to meet certain requirements to qualify.

How do zero-down car loans work?

A no-down-payment car loan is a type of secured loan that provides financing to buy a new or used car, and the financing is backed by the vehicle you’re purchasing. However, unlike a mortgage or a traditional car loan, you don’t pay a large lump sum up front.

The availability of zero-down car loans varies depending on the lender’s maximum loan-to-value (LTV) ratio — this is the maximum percentage of the car’s value the lender is willing to let you borrow.

Before agreeing to lend you money to buy a car, a lender will calculate the LTV for your desired loan amount by dividing the loan amount by the value of the vehicle.

If this figure is within the lender’s LTV guidelines, you may be approved for financing. LTV guidelines differ from one lender to the next, with some offering flexible LTVs of up to 150% or even 180% of a car’s value. The extra money can be used to pay for other car expenses besides the purchase price of the vehicle including insurance and customization.

What factors affect my ability to qualify?

Car loans without down payments are more difficult to qualify for, as a lender will need to be sure that offering you zero-down financing doesn’t come with an unacceptable level of risk attached. While requirements vary by lender, you typically won’t be able to qualify if:

  • You don’t have any credit history. If you can’t demonstrate a history of borrowing money and then making on-time payments to pay off your debt, lenders can’t examine your track record as a borrower, making you a higher risk.
  • You have a bad credit history. Bad-credit borrowers are viewed as posing a higher risk to lenders, so most will require you to have a down payment saved if you want to qualify for a car loan.
  • You have negative equity on your current car. If you’ve previously borrowed money to buy a car, and the value of that car is now less than the outstanding balance you owe on the loan, you’re considered to be in negative equity and your lender will likely require a down payment.
  • The sale price of the car exceeds its value. In some cases, the sale price of the car you want to buy may be well above its value, as might be the case if the vehicle has been modified. When this happens, you may need a down payment to fall within the lender’s acceptable LTV ratio.

What is the cost of a zero-down car loan?

The cost of a zero-down car loan varies depending on the lender you choose, but keep an eye out for the following fees when you apply:

  • Origination fee. Also called a documentation or processing fee, this covers the cost of setting up your loan. Many lenders will allow you to add it to your loan principal, so you’ll need to pay it off along with the rest of the money you borrow.
  • Title and registration fees. You’ll need to pay to have the car titled and registered in your state of residence.
  • Prepayment penalty. If you pay your loan off early, your lender may levy a fee against you to help recover its lost interest. Some lenders will also charge a fee if you make additional repayments above and beyond your approved repayment schedule.
  • Sales tax. You’ll have to pay sales tax on your new car based on the rates charged in your province. Some provinces charge HST, while others will only charge GST. You may be required to pay GST plus a provincial motor vehicle tax depending on where you live.
  • Late payment fee. If you’re late making a repayment or you miss it altogether, expect to be charged a fee. Check how high this fee is before signing your loan.

How to compare car loans with no down payment

Consider the following features when comparing the strengths and weaknesses of zero-down car loans:

  • Loan amount. Because you’re not making a down payment, the amount you need to borrow will obviously increase. Make sure you’ll be able to afford to pay off your debt — even if you experience a month with unexpectedly high expenses.
  • Interest rate. This is a crucial factor to consider when choosing a loan, as the interest rate has a huge bearing on the total cost of the loan. Finding the lowest interest rate can save you thousands of dollars over the life of your loan, so shop around for a competitive deal. Remember also that lenders offer both fixed- and variable-rate loans, so make sure you’re comparing the same types of rates.
  • Fees. Read the terms and conditions of any loan you’re considering to find out which of the fees listed above will apply. How will those amounts affect the total cost of your loan?
  • Loan term. How long will you have to repay the money you borrow? Make sure you’re aware of how the loan term will impact the total cost of the loan. A longer loan term can help lower your monthly repayments, but you’ll pay more in interest in the long run.
  • Required add-ons. Some lenders may require you to take out additional loan features, such as full-coverage auto insurance, in case your car is totaled or stolen and your province doesn’t already require you to have insurance that will pay off the car loan.
  • Car eligibility. Most lenders don’t offer car loans without a down payment for all vehicles. For example, if you’re buying a used car that’s more than 10 years old, you may find that you can only get financing through an unsecured personal loan.

What do I need to apply?

While the eligibility requirements for a zero-down car loan vary by lender, you generally need to meet the following criteria:

  • Be at least 19 years.
  • Be a Canadian citizen or a permanent resident.
  • Have a good credit history
  • Have a steady source of income (usually at least $1,500-$1,800 is required)

During the application process, you’ll likely need to provide:

  • Your name, contact information and personal details.
  • Valid government-issued ID such as a driver’s license or a passport
  • Your employment and income details
  • Information about your liabilities and outstanding loans.
  • The make, model, VIN and mileage details of the vehicle you wish to purchase.

Bottom line

If you have good credit, a zero-down car loan could help you buy a car today without waiting to save up for a down payment. But don’t jump on the first loan you find. Compare rates, terms, fees and other factors of the loan before signing the dotted line to ensure you’re getting the best deal out there.

To learn more about how it all works, read our guide to car loans.

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