Can I Put 0 Down on a Car? What You Need to Know

When considering a new vehicle, understanding financing options is an important step. A down payment is an initial partial payment made upfront towards the car’s total cost. This upfront payment reduces the amount a buyer needs to borrow.

What a 0-Down Car Loan Entails

A “0-down car loan” allows a buyer to finance a vehicle’s entire purchase price without an initial cash payment. This loan type covers the full cost, sometimes including additional expenses like registration fees, sales tax, and other dealership charges. The total amount borrowed equals or exceeds the vehicle’s sticker price, unlike traditional loans where an upfront payment reduces the financed amount.

This structure means the borrower finances the complete amount. While appealing for those who prefer to keep cash reserves or lack savings, it shifts the entire financial burden to the loan.

Eligibility for 0-Down Car Loans

Lenders evaluate several factors for 0-down car loan eligibility, with a strong credit profile being key. A high credit score signals reliability in managing debt. While requirements vary, a FICO score in the “good” range (typically 670-739) or a VantageScore between 661-780 often improves approval chances. Lenders may reserve 0-down options for applicants with excellent credit scores, sometimes requiring 720 or higher.

Income requirements are also important, as lenders need assurance that a borrower can comfortably meet monthly payments. They assess stable, verifiable income to determine repayment capacity, often reviewing pay stubs, bank statements, or tax returns.

A borrower’s debt-to-income (DTI) ratio is another metric, representing the percentage of monthly gross income towards debt payments. Most lenders prefer a DTI of 43% or lower, though some accept up to 50%. A lower DTI indicates sufficient disposable income for additional debt.

Lenders also examine employment history for stability, typically preferring applicants employed at their current job for at least six months, or one year. A consistent employment record over the past two to three years, without significant gaps, demonstrates a reliable income source. Additionally, the vehicle’s type and age can influence eligibility, as some lenders limit 0-down offers to specific models or newer vehicles.

Financial Impact of 0-Down Loans

Opting for a 0-down car loan results in a higher principal loan amount because the entire purchase price and associated fees are financed. A higher principal typically leads to increased monthly payments if the loan term is constant. Alternatively, to maintain similar monthly payments, the loan term must be extended, which means payments are made over a longer period.

A higher principal also results in more total interest paid over the loan’s life. Since interest accrues on the outstanding balance, borrowing more for longer increases overall interest cost. Even a slightly higher interest rate, common with 0-down loans due to increased lender risk, can amplify this effect.

A common consequence of financing the full purchase price is “negative equity,” or being “upside down” on the loan. Negative equity occurs when the outstanding loan balance exceeds the car’s current market value. This is frequent with new vehicles due to significant depreciation upon leaving the lot. A new car can lose 10-20% of its value in the first year, and up to 60% within five years, often causing the loan balance to exceed the car’s worth early in the term.