How To Get A Car Without A Down Payment
In many parts of America, getting to and from work every day means having a car. And if you've been shopping for a new — or new to you — car, you know just how expensive getting one can be. The high sticker cost of a new car can mean a hefty down payment (conventional wisdom says 10% or more), which can be tough to afford.
Fortunately, you can get into a new vehicle without a big down payment — or any down payment at all. Here's what you need to know if you decide to skip making a down payment on a car:
- You'll either be paying more every month or you'll need a longer loan term to keep costs down.
- You'll need good credit to get the best rates (and sometimes to qualify for no down payment).
- Beware of dealership offers of "zero down, zero percent APR," which few buyers actually qualify for.
So how can you get a good deal without a down payment?
Step #1: Check your credit score
Before you apply for any type of loan, you should start by checking your credit score — because a better score usually means a better loan. It's a good idea to review your credit report (which is where your credit score comes from). You can get a free copy of your credit report from AnnualCreditReport.com, which lets you access your credit information from the three credit agencies: Experian, TransUnion, and Equifax.
Once you have a copy of your credit report, it's important to review it for errors. If you find any errors, you should get them corrected before applying for a loan — because a black mark on your credit can have a big impact on your score.
Step #2: Decide how much car you can afford
That brand new $36,000 SUV may be tempting... but it's probably not a practical buy if you're struggling to afford a down payment in the first place. Consider how much money you could afford to spend on a car payment every month and then use a calculator to find out what that means for total cost. Plug in your ideal monthly payment into an auto loan calculator to see what you can afford, and try out different term lengths to see what works best.
Just remember to be honest with yourself about what you can afford and not stretch your monthly budget to the limit. If in doubt, aim for a slightly lower monthly payment so you have a little extra cash to save — or just in case of emergency.
Step #3: Don't forget other expenses
Even though you know how much you can afford every month, you need to remember that the cost of the car isn't the only expense of ownership. Remember that you'll have to pay for gas, insurance and repairs — and these costs vary from car to car. Before you buy, you'll want to consider these costs, too:
- The number of miles per gallon the vehicle gets, which tells you how much you'll spend to keep your new car going.
- Insurance costs, which you should check out with your insurance agent in advance.
- Repair costs, which can vary a lot depending on make and model. Use Consumer Reports' repair estimator to see what a vehicle you're considering will cost in maintenance over time.
Step #4: Set up your financing in advance
You've checked you credit score and decided how much you can afford: now it's time to apply for a loan. Getting your financing before you head to the dealership will let you lock in a good deal — and avoid a hard financial sell while your car shopping. Plus you'll have to shop around a bit to find a lender who will offer you a good loan without a down payment.
Step #5: Consider financing with PenFed
Credit unions are a great way to get loans with good interest rates, and PenFed offers competitive financing for both new and used auto loans. With rates as low as 1.49% — or 0.99% using our car buying service — PenFed can help you get into a new car without the cost.