One of the more popular internet search phrases is Zero Down Auto Loans although consumers with bad credit would be wise to just ignore this term.

We know bad credit

At Auto Credit Express we've been dealing with consumers who are credit challenged for the last 20 years. During this time, we've helped many of our applicants and customers raise their FICO scores and reestablish their car credit by financing a vehicle with a bad credit auto loan. We have also tried our best to educate these applicants on the very different kind of finance instrument that a bad credit car loan really is.

What we've learned along the way is that many consumers with bad credit continue to believe that there is such a thing as a “zero down auto loan”, which, to our understanding, means that the consumer wants an auto loan but does not want to use any of their own cash as a down payment.

No down payment bad credit car loans

If you have bad credit, there are virtually no lenders remaining that offer a true “no down” auto loan program. There may have been a handful of lenders that offered this type of loan a few years ago, but the current economy put a halt to that.

Customer cash, however, is not the only form of down payment. There are two others: trade value (where there is equity in the trade-in) and rebates in the form of customer cash.

Down payment

Customer cash

When most consumers hear the words “money down car loans”, they relate this to actual “cash down” out of pocket – which is what the term “customer cash” really means. In actuality, there are only a few bad credit car loan programs that require cash as a down payment. Most do not specify the difference between cash down and trade value due to trade equity as a down payment.

Vehicle trade-in value

Most bad credit auto loan programs will allow trade value as a down payment in order to meet their minimum down payment requirements. Car dealers will use this as a tool in order to help their customers meet a lender's minimum required down payment. Here's how it works:

As an example, let's say that a customer has a high mileage 2000 Ford Escort with a blown engine. Other than its scrap value to a junk yard, the vehicle has no actual value. The dealership appraises the vehicle, sight unseen, at $100.

The consumer wishes to purchase a used 2007 Dodge Caravan for $15,000 with no cash money down. The most favorable auto financing terms that the car dealer was able to find is with a bad credit car loan lender that requires a minimum of $1,000 as down payment.

The special finance manager structures the deal with a selling price of $15,900 and gives the customer $1,000 for the trade. The net difference in the transaction is $14,900, which is the same as it would have been if the dealer had sold the car for $15,000 and had given the customer $100 for the trade-in vehicle

New car rebates.

Many, but not all, bad credit lenders will allow customers to use a new car rebate in order to meet all, or a portion of, their minimum required down payment. Be sure, however, that the rebate is in the form of customer cash. Dealer cash rebates have to be taken off the top line price of the vehicle and, in most states, can't be treated as part of the down payment.

What this means

If you have bad credit, there are, for the most part, no bad credit car loan lenders out there that will finance a vehicle without the customer having some kind of equity in the vehicle.

At Auto Credit Express, our advice to consumers seeking bad credit car loans hasn't changed since the beginning of the current recession:

• Know your credit score and what's contained in your credit report
• Plan on coming into the loan with at least 10 percent down in cash or trade equity
• Keep the loan term as short as possible
• Buy a compact of midsize vehicle and put off looking at your dream car until after you've reestablished your credit.

We're here to help you

For nearly 20 years, Auto Credit Express has been helping people with credit problems get approved for new and used car loans. Our affiliate dealers work with the leading subprime lenders to get you approved. Your credit report will get checked by the dealer, but once you're approved, each month you make your car payment you are rebuilding your credit score and reestablishing your financial future.

Visit to see what we can do for you.