Alexander is looking to purchase a car and has been looking at all the different finance options. He has recently come across a service that her bank offers, which enables him to make no down payments on the purchase of a car. In this situation, the entire purchase cost of the car is funded by the bank in the form of a loan. 

Related post: Finding Your Next Car

In most circumstances, the bank charges an initial fee, usually a percentage based on the car is value. However, what makes this loan different from others is that there is no down payment required. Some people do not have the funds necessary to make a down payment when purchasing a car, so this type of loan is ideal. A loan that requires zero down payment is sometimes called a 100% finance loan.

When taking out this type of loan, there are some small processing fees to pay to the bank. These processing fees are based on a percentage of the loan amount you’re taking out. The fee charge can vary based on factors such as road tax, insurance costs, and state registration charges. Additional car accessories purchases are not covered by car loans with zero down payments.

What are the Eligibility Criteria for a Car Loan with Zero Down Payment?

Each bank has different criteria when it comes to the eligibility of a zero-down payment loan. Generally, there are several important factors that all of the banks look at before agreeing to provide you with the loan. You can find these factors below.
  • Banking Relationship: If you have a solid, long-term relationship with your bank, you will find it easier to get a zero down payment loan from them. It’s still possible to secure a loan from a bank that you haven’t done business with in the past, but it’ll be much more complicated than working with a bank that knows you.
  • Annual Income: The income you receive each year must be more than the car’s value. In addition to that, the loan amount must also equal less than your annual net income.
  • Current Debts: The bank will consider any existing debts you have. If you already owe money, you may find it harder to get a zero down payment loan.
  • Credit Rating: Banks will look at your credit rating, often called a credit score, when determining whether or not to provide you a loan. The better your credit rating, the higher your chance of being successfully accepted for a loan. A score of over 800, with a good history of on-time repayments, will help your chances of securing the loan.
  • Car Value: The higher the car's value, the less likely you’ll be accepted for the zero down payment loan. Remember that the value of the vehicle must be less than your annual net income.
Some banks also sell auto insurance. This includes Wells Fargo bank, which works with several insurers nationwide to offer their customers great deals on car insurance coverage. For customers that can't make a large down payment, options are available, like buy now pay later car insurance plans. This lets a driver get covered right away and then make a payment at a later date. While auto insurance rates, on average, have gone up the past few years, there are still great deals available. Make sure you compare at least five quotes before buying a policy. 

The Required Documents for Taking Out a Zero Down Payment Loan

Each bank will have different requirements for the documentation needed to take out the loan. However, the documents required are generally the same between banks. In most cases you’ll need the following documents.
  • Bank Statements: You must provide at least 6 months of complete bank account statements.
  • Proof of Income: For workers on a salary, a recent pay slip and Form 16 will be sufficient for proving your income. Self-employed workers must provide evidence through a tax return for the most recent year.
  • Proof of Residency: This can include some of the same documents as proof of identity, a driver’s license, voting ID card, or a copy of your passport. Telephone bills, utility bills, life insurance policies, and ration cards are generally accepted as proof of residency.
  • Proof of Identity: This can include your passport, voting ID card, or driver’s license (must be recently issued, fully readable, and laminated).

How Are Zero Down Payment Car Loans Financially Beneficial?

Typically, when purchasing a car, the seller will insist on a down payment to verify you can pay, which provides some assurance to the seller. A large down payment will also reduce the EMI. However, with a zero down payment loan, there is no need to make a large down payment to assure the seller. All that you will have to pay upfront is the bank’s processing fees and the loan repayment through EMIs.

Do banks offer instant approval for loans with zero down payments?

Some banks do offer an instant approval of the application online, once all of the documents required have been submitted. While waiting for these documents the bank will begin processing the application.

Are there any minimum age limits for these types of loans?

Yes, there are typically minimum age limits when it comes to being accepted for these types of loans. Banks usually require the applicant to be at least 25 years old, due to the fact that they require proof of your income in order to accept your application.

Are there restrictions when it comes to the value of the car I want to buy?

The bank must be satisfied that you are able to pay back the loan, so there are restrictions on the value of the car that you can purchase. The maximum value of the car has to typically be less than your yearly income.

Is it possible to get multiple zero down payment loans concurrently?

The answer isn’t clear cut, as each bank will have its own rules on whether you can have two or more zero down payment loans running at the same time. It ultimately boils down to the bank’s discretion, as well as your credit rating, repayment history and relationship with the bank.

Invest in mutual funds today with money control. Download the money control transact app here. You can explore, research and buy mutual funds through the app.