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Ways to get a Car Loan with no Down Payment and Bad Credit

Written by Jessica Steer
As a car buyer, it can be difficult to not be overwhelmed by the process. Is a down payment needed? Are you buying a new or a used vehicle? What interest rate can you qualify for? Do you have good or bad credit? All of these things make a difference in how the process goes. That being said though, buying a car can also be a very exciting experience. Surprisingly enough, purchasing a car is one of the easiest loans to get, unlike a business loan or another type of personal loan.
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    Credit Score for a Car Down Payment

    When it comes to buying a car, even though you don’t need good credit in order to purchase a vehicle, it will make a difference in how much you pay. If you have a lower credit score, the dealership or bank is more likely to ask for a down payment. One of the main reasons for this is because the interest rate of the loan will be higher and the bank wants to verify that the loan amount isn’t more than the car is worth.

    When it comes to most car loans, they are considered to be secured loans because, if the loan is defaulted, the bank can then seize the car. If the loan is more than the car is worth and the car is seized, the bank is then unable to get all their money back when they resell it.

    The general credit score recommendation to be able to purchase vehicles with no down payment auto loans is 700 plus. That being said, even though your credit score is over 700, you may still have to put a down payment on the vehicle, especially if it’s new, and you aren’t purchasing it that day. This down payment can really range anywhere from $50 to $1000 plus, and it will hold the vehicle for you to purchase instead of the car being sold to someone else. If you don’t have the money for a down payment, you could also use a trade-in value of another vehicle.

    Cosigner for a Car Loan

    If you are having trouble getting a car loan at an affordable price or are unable to make the larger down payment on a vehicle, a cosigner could be a good option for you. A cosigner is basically someone who has a good credit score who is willing to sign the contract with you and vouch that you will make your payments. Because a cosigner has good credit, it can likely reduce your vehicle payments, interest rate and down payment requirements. It is also one of the easiest ways to get a bad credit car loan.

    As a cosigner though, you are liable for that debt if the person you cosign for does not cover it. If for any reason they are unable to continue making payments, then it will be your responsibility to make those payments. While in the meantime it will increase your credit score when the payments are made, it is important to be aware of the risks. Being a cosigner also affects your debt ratio. The vehicle loan, even though you will not be required to pay the monthly car payments, still counts towards your overall debt until the loan is paid off or you have been removed as a cosigner.

    There are many different situations where being a cosigner is beneficial for both the purchaser and the cosigner. It is important to remember that there are risks to both parties so, if you do need a cosigner, make sure it is someone you know well and trust. If you are a cosigner, be vigilant that it could end up being your payments in the future so make sure you make an informed decision before you agree to anything.

    The Lowest Down Payment for a Car

    When you have poor credit and are proceeding with a car purchase, there is a minimum down payment that most dealerships charge. That is usually around 10% of the purchase price. They also don’t usually don’t like to go below $1000 either. Don’t forget though, this is mainly for used vehicles. If you are looking to purchase a brand new car, the standard down payment for poor credit is 20% of the purchase price. Here are a few different examples.

    Purchase price 10% 12% 20%
    $7500 $750 $900 $1500
    $15,000 $1500 $1800 $3000
    $30,000 $3000 $3600 $6000

    These numbers are just examples of potential vehicle prices. When you purchase a vehicle there are additional taxes added, as well as documentation fees and other additions so the actual price will likely be much more.

    Zero Down Payment

    Getting a no down payment loan for a vehicle isn’t really as impossible as it seems. There are plenty of ways to avoid this. Even if you have a lower credit score, you may be able to get a zero down payment loan if you take a higher interest rate. It also depends on the price of the vehicle, your credit limit, and your overall credit history. The other way to get approved is to get a cosigner like discussed above. Both of these things act as insurance for a lender and using these methods to get you the car that you need and you have no money. They help to verify that they get their money back, but if not, they can always seize the vehicle.

    Keeping a Higher Interest Car Loan

    If you decide to go with a higher interest car loan to avoid a down payment, many people think you have to keep that car loan until it is paid off. What many people don’t realize is that after 6 months to a year, if you have made your monthly payments on time and focused on increasing your credit score, you could potentially refinance your vehicle loan for a lower interest rate.

    With many car loans, you can also put money down on the principal whenever you like as well to help with paying less interest. By doing this, you could potentially save yourself thousands and pay off your loan much faster. This will also help to boost your credit score.

    Bank or Dealership?

    When it comes to getting auto financing, before you worry about all of the logistics, the first step is to figure out how you are going to pay for it. Do you have savings? Are you going to go through your bank or credit union or directly through the dealership?

    If you are purchasing a used car, unless you are going through an auto dealership, you will either need to save up the money yourself or go through your bank or credit union. If you already have a previous relationship with the bank it could work in your favour. As long as you provide the necessary paperwork and have a decent credit history.

    When it comes to purchasing a new vehicle, it can often be cheaper to go directly through the dealership. They often have promotional interest rates or have more sway to get you into a vehicle than the bank. This is mainly because they already have the information on the vehicle and can use the vehicle as collateral whereas going through a bank could result in an unsecured loan instead of a secured auto loan, resulting in a higher interest rate.

    What Lenders look at to Get a Car Loan without a Down Payment

    If you are seriously looking into getting no down payment car loan, lenders then start to focus on factors other than the down payment like:

    • Income
    • Affordability of the vehicle
    • Credit history
    • Security
    • Vehicle equity

    Lenders are looking for you to have a suitable income in order to afford a vehicle payment. This often means having a full-time job or working full-time hours. Some lenders also like to see that you have a decent amount of money in your bank account but this doesn’t always matter if you can show a positive recent credit history. This helps to give the lenders some confidence in your ability to make your monthly payments.

    Lenders also want to verify that the purchase price of the vehicle directly relates to what it is worth. Sometimes lenders will request some form of collateral whether it be the vehicle you are purchasing or another form of collateral.

    Documentation Needed to Apply for a No Documentation Car Loan

    In order to complete your loan application, the lender will want to see certain documentation in order to prove who you are as well as your income. This is pretty standard whether you are applying for a loan online, in person or with a dealership.

    1. Proof of Identity: The first thing lenders will require is ID. They use this to prove that you are of the age of majority which is usually 18+. It also proves that you are a Canadian citizen. The most common accepted forms of government ID are a driver’s license or a passport.
    2. Proof of Address: In order to get approved for auto loans you do need to provide proof of address. It is ideal if this address matches your driver's license but it isn’t necessary. For proof of address you can use any bill such as a credit card bill, phone bill or even a hydro bill. Some do try to use a rental agreement as well and while that can be helpful in confirming what you pay for rent monthly, unless the agreement is current within 90 days, it may not be accepted or require a bill to go along with it.
    3. Bank Statements: It is common for lenders to require 90 days worth of statements before approving a loan. This confirms for them that you have an active chequing account. If the loan payment is to come out of your bank account monthly the lender may also require a direct deposit form or a VOID cheque.
    4. Credit Report: Checking your credit report and credit score is the lender's way of finding out how likely you are to pay back any loans that you are given. The more favorable the credit report, the more likely the lender is to give you a lower interest rate.
    5. Information about the Vehicle: This gives the lender an opportunity to verify you are paying an appropriate amount for the vehicle and they will not be losing any money. This is sometimes referred to as the loan to value ratio.
    6. Other Debts: If you have any other debts or liabilities, the lender needs to know what they are and how much you owe. This will tell them if you can afford the loan payments on top of your other debt payments. The less debt you have, the easier the approval will be.

    Getting a Car Loan with Spring Financial

    While getting a loan for a vehicle can sometimes be difficult, Spring Financial can help you get anywhere from $500 to $35,000 as soon as today. If you are having trouble with other lenders or don’t quite have the down payment needed to purchase the vehicle you want, we can help. We specialize in personal loans for those with all different credit scores. Apply online in as little as 3 minutes, and receive an e-transfer in as little as a few hours from approval. You can also give us a call at 1-888-781-8439.

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