When shopping for a car, a down payment may seem like a real drag especially when selecting a more expensive luxury or exotic car. In the earlier car financing days, a 10-20% down payment was almost like a minimum expectation. In today’s automotive environment things have changed, and it is now possible to buy a $250,000 car with no money down, even when you have average credit.
Down payments are connected to what we call LTV, which stands for Loan to Value. A bank will finance up to 120% of the Loan to Value which means that the bank will use a tool like NADA to determine the clean retail value of a car. Then it will offer financing up to 120% of the value assuming it is not too old (more than 6 years old) and your credit score is decent enough to minimize the risk of default on the loan as no bank wants to get stuck with over valued collateral.
The reason banks lend up to 120% is because they understand that dealers mark up the cost to make money and often times people will finance negative equity. To allow dealers to finance even their profits or perhaps the taxes associated with the purchase, banks end up lending up to 120%.
There are some cars as seen on our list for insiders that are going to be more in your favor; therefore allowing you to have a much nicer car with just about zero down.
If you are buying a newer Honda Accord, the NADA value will be the MSRP which means that often you will be stuck with putting some sort of down payment to cover the taxes, tags, and/or any additional markups by dealers. You have to find cars that, despite having lower market values, are priced much higher on NADA.
An example would be a 2009 Mercedes-Benz SL65. While the car in dealerships has a value of $70K to $80K, the car on the books will show $145K; so even if you paid the premium price for it and rolled in your taxes and fees, you would still be well below 80% of the book value. Then financing allows you to qualify much easier with no money down and be able to get the best rate possible.
The down payment is directly linked to the LTV and your credit score: the better your score, the more likely the bank is to finance up to 120%.
Most banks will look for credit scores of over 720 in order to extend this courtesy, but even those with average credit can fool the system by making sure to choose cars that book significantly higher, but have lower market values. Even with taxes, tags, and full market value, it still gives the bank peace of mind that it’s not extending itself.