Let’s get one thing straight. Should you put money down on a car when you have bad credit? You should if you have the ability to do so. Many people don’t have that ability though, so being able to purchase a car with no money down, despite bad credit is doable. It’s a matter of what is referred to in the industry as “creative financing”.
Normally, there down payments are only required for a couple of reasons…
1) To reduce the amount financed. Bad credit lenders normally have strict guidelines that they adhere to, in regards to the amount that they will loan on a car. This is based on a number of factors, including book value. Book value is affected by the year, make, model, mileage and condition of the vehicle. The actual amount that is needed for your individual car loan is also determined by the amount of money that you owe on your trade-in vs it’s wholesale value. Whether you have good credit or bad credit, you should always reduce the amount that you are financing when you are able to, as it helps you to save money on finance charges and places you in the loan in a more equitable position.
2) It adds additional profit to the sale. This can be in part due to reason #1. When lenders won’t advance the full amount for the vehicle after trade, tax, title and tag… the money has to come from somewhere if the dealer is to retain their retail profit. In some cases, the additional monies are not really required, it’s just a way for the dealer to make more money on top of the car loan itself and to derive a premium price for a vehicle.
What can help if I don’t have a down payment?
Dealer rebates, manufacturer rebates and trade-in allowances can help. Dealers are in business to sell cars, so moving the numbers around to make a favorable presentation of your loan application to lenders is one of the things that they do best.
Where can I get approved with no down payment?
Dealerships that finance their own cars, commonly referred to as “in house financing”, will not be your best bet if you don’t have any money to put down. Most local banks will require 20% or more, and normal prime lenders won’t even consider an application that doesn’t have a sizable down payment attached (if you have a low credit score). One of the more popular modes of obtaining financing to purchase a car with bad credit and no money down, is through reputable lending sources and networks online. There are a few good companies that specialize in this sort of thing, that you may with to take a look at.