Do I Need A Down Payment For My Car Loan?

Posted by on March 06, 2019 @06:15:11 EST
Do I Need A Down Payment For My Car Loan?

If you’ve decided to take the plunge and invest in a new car, there are a lot of things to take into consideration, from why you’re getting the car, to how much you’ll use it and everything in between. Ultimately, the most important variable of the car-acquiring process narrows down to how much you’re willing to, and are actually able to spend on your new set of wheels.

For many individuals looking to get a new car, fully paying upfront simply isn’t achievable. People have additional responsibilities and recurring costs in their lives, and paying several thousands of dollars all at once could affect both their lifestyles and their bank accounts! As a result, it’s common for several buyers to take on a car loan in Toronto.

Within a car loan itself, there are a lot of choices to be made that could either be detrimental or beneficial to your financial health. As mentioned earlier, most people can’t afford to pay off a car fully– but they may have some cash saved up to go towards it.

Spending a good amount of money initially (on something bought with credit) is known as down payment. We’ve created a guide to help you navigate through the down payment process.

Determining If You Need A Down Payment

To answer the question at hand: you don’t necessarily need a down payment if you go to the right credit lender.

Obviously, we recommend putting down whatever you’re able to spend initially as it will reduce your loan amount and therefore your interest rates. Here at, we understand that everyone has different financial situations, and sometimes your credit score may not be a true reflection of your financial management. Things like missed payments, or sudden recurring medical costs can significantly impact your credit score.

Many lenders will be quick to turn down your application without taking personal circumstances into consideration. For that reason, will accept zero down payment loans–no questions asked.

Person driving after getting a new car loan in Toronto

Calculating How Much Of A Down Payment You Can Afford

Take a look at your finances, your expenses, and any new costs that you predict may appear in the new future.
Make sure you’re comfortable with your understanding of your finances, and then decide on how much you’re willing to pay for the total car of a car first. Even the difference between a $20,000 car and a $25,000 car can make a big impact in terms of how much of an interest rate you’ll pay, and how long you’ll have your car for.

Traditionally, people have looked at the 20% rule for guidance before spending big bucks on a purchase like a new vehicle. This means that if you’re looking to buy a $20,000 car, it’s not a bad idea to put down $4,000 as your down payment.
Again, down payment “rules” aren’t applicable to everyone, and it’s important to understand what is a realistic and healthy goal. Some people don’t have the finances to afford a down payment at all, and there are creditors who will work with them to finance a car without a down payment.
One great resource to calculate down payments and their associated interest payments is with a car loan calculator.

Consider Cash Alternatives

Did you know that you don’t always have to make a down payment with an all-cash or monetary form?
There are two other common ways to ensure your down payment is accepted: through a vehicle trade-in, or with cash rebates on your car’s purchase. Trade-ins obviously can only apply to those that have previously owned a vehicle, but it has definitely proven to be advantageous in acquiring new cars.

The old car’s value (that is mutually agreed upon between the dealer and buyer) will be directly deducted from the new car. That way, people either don’t have to spend a large lump sum on a down payment, or they can add some of their savings to build a hefty down payment without breaking the bank.

A cash rebate involves cash–but not yours. Rebates are essentially a marketing tactic to reduce cost of cars and increase sales. Rebates are often covered by the manufacturer of the vehicle. For example, a manufacturer may offer a $5,000 rebate on a car in order to double the sales of the cars. Rebates can work well in your favour if you use it to your advantage and stick to your budget. Many people unfortunately get trapped by deals that sound incredible, but are on more expensive cars. If a $30,000 car has a $7,500 rebate, and your budget is $20,000, you shouldn’t get the car because it’s “only $2,500 more”. If you’re taking the rebate route, try to find a deal within your means and you’ll be good to go!

Zero Down Payments

The greatest advantage to zero down payment financing is getting into your ride without having to save for several months and with live without difficulty from not having a car. The not-so-glamorous aspects of getting approved for a zero down payment plan is higher monthly payments, finance charges and interest rates.

Many people share the belief that an individual’s credit health must be in excellent shape to be approved for a zero down payment car loan. Unfortunately, that is the case with many credit providers, but certainly not all of them. Here at Auto Loans Canada, we will provide zero down payment bad credit car loans to anyone as we understand that financial stability can be difficult to achieve in this economic climate. If you are going to take the zero down payment route, we recommend pairing it with a good insurance plan.

Close up of man signing bad credit car loan in toronto

Used Cars Versus New Cars

Calculating down payments differ between used cars and new cars.

The aforementioned 20% rule generally applies to newer cars but there is flexibility within the down payment range. With used cars, we recommend trying to pay the 20% as the car’s value has likely already depreciated significantly. For example, if you’re looking to purchase a $20,000 car, you should aim to pay $4000 as a down payment and finance the other $16,000.

Vehicles have always been considered a depreciating asset, and it’s been reported that many cars can lose up to 20% of their value the second they drive off a dealership lot. Depreciation in the auto world is so drastic because cars are always in production, and always improving. For example, a 2017 model and a 2019 model may have technological features that seems worlds apart despite being built relatively recently.

Benefits Of Minimal Down Payments


Zero down payment financing plans allow the buyer to hold onto some of their cash for additional fundamental expenses. At the same time, it provides some cushion in case there are repairs to be made on the car. Repairs and damage are obviously less likely to occur with new cars, but depending on what used car you may get, having the additional cushion may help.

Working with a reliable credit provider is key to ensure you’re entering a risk-free bad credit car loan in Toronto. While shopping around, only look for dealerships or loan providers that offer certified used cars. Some offer a warranty, and they will only sell vehicles that have passed a series of safety screenings, so you can be sure that the car you get is less likely to have significant repair within your first few years of owning the car.


Car Insurance is something that many people tend to overlook, but it does add a good amount to your total cost.

If you are entering a zero down payment plan, ensure you’re accounting for the cost insurance as well. By initially making a down payment, many people find themselves overwhelmed with car-related bills. If your insurance payment seems to be too much on top of your monthly payments, you may want to reconsider your financing plan and either extend your loan period, or choose a new vehicle entirely.

Benefits of Large Down Payments

We’ve already briefly touched on the largest benefits of large down payments, but it’s important for you as a buyer to understand and consider deprecation, your finances, and calculate your total interest paid over the course of your car loan in toronto. Traditionally, people would finance their car anywhere from three to five years. Now, with the standard of living on the rise and people increasingly finding themselves in financial hardship, it’s more difficult to meet the time-tested 20% rule. That said, the rule has evolved over time.

Many car loan providers accommodate the new rates of financial health amongst consumers and adjust accordingly. It is possible to finance a car for longer than 5 years, but make sure you compare and contrast your cars depreciate so that you avoid paying more than the car’s value in the future.

The largest advantage of paying the 20% down payment is that it reduces all associated costs: finance costs, monthly payments, and overall interest paid. If you take on a zero down payment loan initially and find yourself saving a bit of extra cash, you can always refinance your loan to shorten your loan term and ultimately your total car cost in the long run. Remember, the ultimate goal is to avoid entering a negative equity situation.

Our hope at Auto Loans Canada is to ensure that consumers don’t feel helpless for not being able to spend on a down payment. It is possible to get a car loan without a down payment. At the same time, it’s crucial to understand all of the aspects involved in determining how much of a down payment you will pay. To get step by step assistance and explanations through the process of acquiring a car loan in Toronto, contact us today.