Car Financing Without a Down Payment: Options & Strategies

Car dealers typically want to see a down payment of about 20 percent -- possibly more if you're a subprime borrower -- but there are a variety of options for financing a car without coming out of pocket. Most are based on your credit history and the type of car you're buying.

Why Dealers Want a Down Payment

According to Edmunds.com, new cars depreciate an average of 20 percent during the first year of ownership. If you don't put any cash down, it means you're upside down right away, owing more money than your car is worth. It also means lenders are in a tricky spot because if you default on your loan, they can't recoup the full value of the loan, even if they repossess and sell your car.

Tip

Make a down payment if you can afford it. It gives you lower monthly payments and more wiggle room if your financial situation changes and you need to sell your car and downsize to a smaller model.

Use Incentives

Many buyers use cash back incentives and rebates to serve as a down payment when financing a new car. This prevents you from dipping into savings or stretching your budget to afford putting money down.

Warning

Incentives can be limited to the purchase of specific vehicles, and you may have fewer options when it comes to upgrades and features.

Trade in a Vehicle

Trading in a car can help you get financing on a new or used vehicle without putting down a cash payment. Make sure you know what your car is worth before stepping into a dealership by using a site like Edmunds or Kelley Blue Book. You might find it's more financially prudent to sell your car privately and put the profit toward your new car purchase.

Warning

If you’re trading in a vehicle that still has a lien against it and rolling the overage into a new loan, it puts you even more upside down on the new purchase.

Build An Excellent Credit Score

The better your credit, the more options you have for financing a car. Special options like zero percent financing are usually only available to those with exceptional credit. Additionally, if you have a low debt-to-income ratio and a steady paycheck, you look like a much better credit risk, even with no down payment.

Tip

Check your credit score before shopping for cars. It will give you greater bargaining power if you have a high score.