If one is eyeing a car but doesn’t have the required down payment or enough cash, one doesn’t necessarily have to give up. Obtaining a vehicle on credit without a down payment is possible, but one should be aware that these cars usually come with high interest rates. A guide on how to get a car without a down payment, along with useful tips, can help one make an informed purchase.

1. Increase the credit score
Lenders will reduce interest rates in the following situations:

• Has lived in a place for about a year.
• Has a regular monthly income.
• Has a steady job
• Holds good credit history

But what can one do if one wishes to shop from dealers offering a sale of cars in monthly payments without a down payment? The answer is to improve one’s credit score. There are multiple ways to increase one’s score:

• Financial institutions compute 35% of the credit score via one’s payment history. So, one can boost one’s credit score if one makes timely payments.
• 30% of the credit score depends on the amount one owes on loans and credit cards. Hence, one’s credit score will fall if one uses one’s credit limit to the fullest, as it signifies one requires debt more often. So, try for timely payments and small balances to boost one’s credit score.
• 15% of a person’s credit score depends on how long they have had debt. So, if their on-time payment history is long, their credit score will be higher.
• Ten percent of a credit score depends on the loan types one has. So, aim for a varied credit mix. Thus, one’s credit score will be higher if one’s portfolio comprises a mix of loans against FD, car loans, home loans, credit cards, etc.
• Lastly, 10% of the credit score depends on one’s credit activity. It is an overall impact of all the above-stated four factors.

So, remember these factors and take measures to better one’s credit score if one hopes to buy a car on credit with no down payment.

2. Negotiate a higher monthly payment
One can get a car with no down payment on monthly payments. But how? Try negotiating with the lending agency on a higher monthly payment. In a general scenario, the monthly payment reflects the down payment amount.

• Buyers give a high down payment to keep monthly payments low.
• Alternatively, some keep the down payment low but agree to a higher monthly payment.

A down payment primarily lowers the risk for the lending agency. Hence, when the down payment is increased, lenders agree to give the loan at a lower rate. But what should one do when there is no money for a down payment? Negotiate with the lender for a higher monthly payment. But this may attract a higher interest rate. Let us understand with an example:

• Loan on Car –  25,000 MXN
• Interest rate –  5 percent
• Time –  72 months

With down payment
One agrees to a 20% down payment.

• Down payment – 5000 MXN
• Monthly payment – 403 MXN
• Overall interest – $3988

Without down payment

• Monthly payments –  403 MXN
• Overall interest –  3988 MXN
• Given –  Interest rate stays the same (in the example).

However, the interest rate may not always be the same. So, please account for the higher monthly payments and interest rates before one aspires to buy a car with no down payment on monthly payments.

3. Shop around
Car loans vary widely. So, research and spend ample time shopping around. Visit local credit unions, dealerships, or any specialized lender offering a sale of cars in monthly payments without a down payment. Ensure the interest rates are low. Before shopping for auto loans, get well-acquainted with the prevailing auto loan rates in the country. This will ensure one does not get duped or misled by dealers. Naturally, one can negotiate and get a loan at better terms after knowing the rates.

4. Get a cosigner
If one does not have the time or patience to wait and still needs an auto loan without a down payment, get a cosigner on board. It can be a friend or a family member with a solid credit score. They can help one bag a loan at more favorable terms.
However, getting a cosigner has its cons:

• One’s and the cosigner’s credit scores will drop together if one defaults on payments.
• It might lead to conflicts with the cosigner, as they may resent one’s failure to make timely payments. So, keep organized records and maintain clear terms to avoid disagreements.

5. Trade in the old vehicle
Trading in an existing car (provided an individual has one) can help reduce the loan amount when one wishes to secure vehicles on credit with 0 down payment. It works similarly to the down payment but requires no upfront cash or payment from one’s end. Alternatively, one can also sell it privately, as it can get one a better price for the car. One can use the sale proceeds as a down payment.

6. Save for the down payment
While one can secure a loan without a down payment, we recommend saving money before loan shopping. Without a down payment, one is underwater on the loan as the car’s value depreciates rapidly. So, save up and aim for at least a 20 percent down payment. As stated, the more money one puts towards a down payment, the better interest rate one can secure.