Zero Down Versus Something Down: Bad Credit Financing

You need a vehicle, and you need one now. But your credit score is lower than it should be, and you’re totally strapped for cash. So, that sign at your local car dealership stating zero money down sounds pretty good right now, doesn’t it?

But, before you sign that contract and drive away with your car, here are a few things you need to know about getting bad credit financing.

Why Is A Down Payment Usually Required For A Car Loan?

Lenders are taking a risk lending you money. After all, if you end up defaulting, they either lose money or they must go to extraordinary lengths to chase after you. So, they look for a sign of faith that you have the financial means to pay them back and receiving a down payment shows you are on the right path.

Plus, a down payment gives your lender a chunk of money right off the bat to cover part of what the vehicle is worth. So, at least if you do end up defaulting on the loan, they’re not losing quite as much money.

How Much Of A Down Payment Is Typically Required?

Most lenders look for a down payment of between 10% and 20% of the total loan. This can also depend on your loan terms.

If you are having trouble coming up with a down payment, some dealerships may encourage you to trade in your current vehicle with them so they can use that amount as your down payment. However, since dealerships notoriously give you a lower trade-in value than your vehicle is worth, it may be better if you can do a private sale and use that money as your down payment.

The larger the down payment, the better it bodes for you getting a quality vehicle and a lower interest rate. And, the more money you put down when you purchase, the less money you’ll then have to borrow and pay back. So, your loan term will be shortened.

Car Loans With Low Down Payments In Canada
Car Loans With Low Down Payments In Canada

Zero Down Payment Car Loans

If a lender is going to take on the huge financial risk of letting you enter into a car loan with no down payment, they’re likely going to want to check out a few things about you first.

Credit score. The higher your credit score is, the better. A high credit score shows you have made all your payments promptly in the past and can likely be trusted to do so again. And you have many more options available to you for car loans if you have a good to excellent credit rating. There are some ways you can increase your credit score, but they can take the time you likely don’t have right now.

However, just because you have a bad credit rating doesn’t mean you’re totally out of luck getting a loan. You still have options for obtaining a bad credit car loan.

The vehicle you choose. The more expensive the vehicle, the bigger the loan you will have to apply for. This means your monthly payments will either be larger or amortized over a longer period of time.

In other words, if you want to buy a $20,000 vehicle, you may have a harder time getting approved for a bad credit car loan. But, if you only require a loan to purchase a $2,000 vehicle, your lender should be more willing to take a risk on you—even on a zero down payment car loan.

If you can afford it. Your lender will very likely want to see proof of income from you. Then you can all decide how much you can afford to pay every month, after paying rent/mortgage and all other necessary bills.

If you have other debts and/or are unlikely to have much money left at the end of the month to pay off a loan, you may have a harder time securing a loan. Especially a zero down bad credit financing loan.

Zero Down Payment Auto FinancingWhat Else Do I Need To Know About Zero Down Car Loans?

Since lenders are taking more of a risk by offering you a loan with no down payment, it will very likely come with a higher interest rate.

And, since there is no down payment to offset some of the price, your loan will often go on longer. Which, when you add in your high level of interest, will very likely cost you more. And your vehicle may depreciate significantly, or even come to the end of its life before you pay back your entire loan. So, it’s possible you may still be paying off the loan past the time you actually have the car.

The equity you have in the vehicle doesn’t start until you’ve paid off a certain amount. So, the longer you take to pay, the longer it is before you can start claiming ownership.

The Bottom Line

Saving up even a small down payment will go a long way to gaining the trust of your lender and getting you a better rate on a loan. And, although it may seem hard to shell out a bunch of cash in the beginning for a down payment, it will result in paying less money in the long run.

But, let’s face it, sometimes you have absolutely no access to cash and need a vehicle. So, you’ll have no choice but to look at zero down financing.

At LendingArch, you can rest easy knowing you’ll get the best car loan rates in Canada. Whether you live in Toronto, Vancouver or somewhere else in Canada, check out LendingArch today. Use our handy, easy-to-use car loan calculator to find your best rates. It’s quick and simple to apply online.

About The Author


It is a long established fact that a reader will be distracted by the readable content of a page when looking at its layout. The point of using Lorem Ipsum is that it has a more-or-less normal distribution of letters, as opposed to using 'Content here, content here', making it look like readable English.

You May Also Like:

Do I Need a Down Payment for a Car Loan

If you’re a Canadian in the market for a new car, you might be interested in securing a car loan ... Read more

Read More

Can I Balance Transfer My Personal Car Loan?

Life is all about possibilities. Planning that next great trip, renovating your home, or just enjoying all that life has ... Read more

Read More