How much down payment for a car with no credit

By Nooreen B
Modified on May 8, 2023
how much down payment for a car with no credit

When financing a car, you will likely need a down payment. Down payment requirements by themselves vary quite a bit depending on where you are purchasing your vehicle and sometimes the value of the car you are buying. And things can get a little more complicated when you apply for a car loan with no credit history. Below you will find everything you need to know about a down payment for a car with no credit history and options available to make your purchase.

How Does Credit History Affect the Down Payment for a Car Loan?

Your credit will be looked at when you apply for any loan. Your credit history is a record of all your credit accounts and how you have handled them. Things such as your payment record, debt amount, credit account types, etc., make up your credit history. All this information is on your credit reports which lenders will pull before giving you a loan. 

Without any credit, it can be challenging for lenders to gauge how responsible you are with your credit accounts and, therefore, how likely you are to repay your car loan. And so, they may ask for a larger down payment for their financial protection if they do decide to give out a loan to you. 

Required Down Payment With No Credit 

When it comes to the required amount for a down payment on a car with no credit, it will largely depend on where you buy your car from. Sometimes you may find special promotions or seasonal discounts from one place that impacts the kind of down payment required. 

If you get your car loan from a lender, you may not see as much variation as you could see from one dealership to another regarding loan terms and the required down payment. 

Other than the place you get your loan, there are a few other factors that will impact your required down payment for your auto loan (these factors will also affect loan approval):

Your Credit Scores and Credit Situation

As mentioned above, your credit scores and credit history will be looked at by lenders when determining how much of a down payment you will need for your auto loan. 

Your Income on a Monthly or Annual Basis

Your income is a huge factor in determining how much of a Down payment you will need for a loan. The amount you make will show a lender how much of a monthly payment you may be able to afford, which can determine the car loan amount you qualify for. The less income you have, the more significant down payment you may need. 

Ability To Repay the Loan

Your ability to repay the loan encompasses everything from your income, your debt amount, and all of your other monthly expenses. 

The Condition of the Car

And finally, the last thing that will affect how much a down payment you will need is the vehicle’s condition. Usually, when shopping for a new car, you will need a much more substantial down payment than if you are buying a used vehicle.   

Sometimes you may find yourself in a situation where even without credit, you may not need a large down payment. However, a small down payment may not be the best idea because it can mean more debt and higher interest rates. As a general rule, it is recommended to have at least a 20% down payment on a new car and a 10% down payment on a used vehicle when financing a car.

What If I Don’t Get Approved for a Car Loan Because of No Credit?

Many lenders like banks, credit unions, and dealerships will not approve you for an auto loan if you do not have any credit history—it will be too much of a risk for them. However, there are some options to consider that can increase your chances of approval, along with some alternatives to car financing to look into: 

Get a Cosigner

A cosigner is someone you can add to your loan, who can increase your chances of loan approval and sometimes even mean a lower interest rate. You will be responsible for the monthly payments on your loan, but if you cannot pay, then your cosigner will have to. Missing payments or loan default will also impact your cosigner’s credit, so keep that in mind before asking someone else to cosign for you. 

Use a Joint Auto Loan

A joint auto loan has two borrowers, lenders look at both credit scores. The other person involved can be a spouse, parent, family member, or sibling with whom you may share the car. Unlike a cosigner, this second person will immediately be responsible for a portion of the monthly payment—called a co-borrower. Adding another person with good credit to your loan can increase your eligibility chances, lower the interest charges, and bring down the required down payment. If one borrower does not pay their part of the loan, the other borrower will have to cover that portion. And just like a cosigner, all activities, good or bad, will reflect on both people’s credit scores.

Increase Your Down Payment

Another thing you can do to increase your chances of approval with an auto loan is to increase the amount of money you put down. If you don’t have the money upfront, then consider saving over time. There are also financial products you can look to for more money to put down on your car purchase. When working with no credit history, some loan options can work. Try to avoid payday loans, even though they come with flexible credit requirements, as they come with high-interest rates and lots of fees. 

Consider a Trade-In

Another thing you can consider when trying to secure an auto loan with no credit is a trade-in. If you have a current vehicle in good condition, you may be able to trade it in with a dealership. That trade-in value can go towards paying for your new car and lower the down payment and loan amount you need with the car loan. 

Choose a Cheaper Car

The most straightforward option is to consider buying a cheaper vehicle so you don’t have to take out a car loan at all or that you can take out a smaller loan for the purchase. A used car can be significantly cheaper than the same car that is brand new, and it may have everything you want in a new vehicle!

Take Time To Build Your Credit

If you don’t need to buy a car right away, it may be worthwhile to take some time and build your credit history. With good credit, you’ll have many car loan options and get the best repayment terms! You may even be able to secure multiple car loans with good credit! Options like secured credit cards, credit builder loans, and getting your rent and utilities reported can all help you start building credit. 

How Much of a Down Payment Should You Make on a Car – Experian

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