What is Zero Down Payment on a Car Loan?

Let’s consider a scenario- you walk into a car showroom, you spot your dream car, and you want to drive it home. But you leave disappointed because you can not make a hefty down payment.  Now, picture this instead: the salesperson smiles and says, “No need to worry about the down payment. We’ve got you covered with a zero down payment loan.” Sounds incredible, right?

This is exactly what a zero downpayment on your car loan is. let’s take a closer look at what it really means and if it’s the right fit for you.

What is a Zero Down Payment Car Loan?

A zero down payment car loan is exactly what it sounds like—you don’t pay anything upfront while buying a car. Usually, you would be expected to pay a portion of the car’s price as a down payment (say 10–20%). The rest of the payment is financed by your bank or lender.

With a zero down payment loan, however, the lender covers the entire cost of the car. That includes the ex-showroom price, road tax, insurance, and registration charges. Essentially, you’re borrowing 100% of the car’s on-road price.

Pros of zero down payment

1. Easy on your savings
   You don’t need to dip into your savings or wait for months to save up for the down payment. That is why young professionals or first-time buyers may opt for this method.
2. No delays
   You do not have to delay your purchase in case of an urgent need of a car. It could be to escape the public transport or a family member needs a car to travel to and fro or multiple other reasons.
3. Upgrade your car
   If you want to just enjoy the luxury of a new car or you have your mind set on a particular model of a car but do not want to break your savings for it. However, this may not be an absolute need , You may want to consider your financial options before opting for such a method to finance your car.

Cons of zero down payment

1. Bigger Loan, Bigger EMIs

Since you’re borrowing the entire cost of the car, the loan amount is higher. And higher loan amount means higher EMI.

Example:
Let’s say the car costs ₹10,00,000.

• With a 20% down payment, you borrow ₹8,00,000.
• With zero down payment, you borrow ₹10,00,000.

For a 5-year loan at 8% interest:

• With a ₹2,00,000 down payment, your EMI is about ₹16,200.
• With zero down payment, your EMI shoots up to ₹20,250.

That’s ₹4,000 more every month!

2. Higher Total Cost

The more you borrow, the more interest you pay over the loan tenure. By skipping the down payment, you’re essentially making your car more expensive.

3. Stricter Approval

Since lenders are taking a bigger risk here, they’re going to scrutinise your credit score, income stability, and repayment capacity very carefully.

Who is it for?

A zero down payment car loan may not be the best option for everyone, but it may work in certain situations:

1. You need a car urgently:
   If your old car just gave up on you or you’ve landed a job that requires commuting, waiting to save up for a down payment may not be practical. It may also be that a family member relies on your vehicle for transportation.
   
   
2. You’re confident about your repayment ability:
   If you’ve got a steady income and can handle the higher EMIs, it’s a convenient option. You should check all your options before buying a car with this method.
    
3. Your savings are tied up:
   Maybe you’ve invested your money in a business or property and don’t want to touch your savings. This loan lets you keep your investments intact while still getting the car.

For example

Let’s take two friends, Amit and Rohan, to understand this better.

• Amit has saved up ₹2,00,000 and opts for a traditional car loan. He pays the down payment and borrows ₹8,00,000 for a ₹10,00,000 car. His EMI is ₹16,200, and he ends up paying ₹9,72,000 over 5 years (including interest).
• Rohan, on the other hand, goes for a zero down payment loan for the same car. He borrows ₹10,00,000 and pays an EMI of ₹20,250, shelling out ₹12,15,000 over 5 years.

Result –

• Amit saves ₹2,43,000 in total payments but had to part with ₹2,00,000 upfront.
• Rohan paid more in the long run but kept his savings intact.

It all comes down to your priorities.

In conclusion

Zero down payment car loans can be a good option when you’re in a tight spot or simply want the convenience of immediate ownership. However, they come at a cost—higher EMIs and interest.

If you’re financially stable, confident about repaying, and don’t want to drain your savings, this option can be a great way to drive home your dream car. But if you’re already juggling multiple expenses, it might be smarter to wait, save, and go the traditional route.

For your car owning dreams, you may want to check car loan on Tata Capital or download the Tata Capital App.

Note – Tata Capital does not offer zero-down payment on car loan. You may refer to the website for latest information.