Have you heard some adverts from a radio or seen them in newspapers stating that “you can get a novel vehicle for zero down!” It sounds totally appealing, but this leaves us asking if these deals are too good to be real. Is it really possible to purchase a car without any down payment?
The truth is that you can buy a car with no down payment, but not unless you intend to trade in the current car, the nil down payments could translate to more costly monthly payments and higher costs for the whole process. The following are some of the facts you need to be aware of before thinking of buying a car with no money down:
Zero Down Payments vs. Down Payment: How different are they?
Very few people are capable of paying for their vehicles upfront; this means that whether you’re paying using a down payment or not, you’ll end up using auto loans for financing the purchase. However, remember that when buying a car, it’s not only the car’s price that you’re catering for. You will incur additional costs, like registration fees and state taxes. The dealership can also charge transportation and documentation fees.
Failing to make any down payments when buying a car, causes these fees to be included in the total amount you’re financing. For instance, if you’re purchasing a car worth $25,000 without any down payment, you could end up financing approximately $28,000 when all the fees and taxes are factored in.
The unfortunate thing is that a car’s value begins to depreciate the minute it’s driven off the parking lot, even by 20 % in one year after purchase. For instance, if you finance approximately $28,000 for a car worth $25,000, it depreciates by approximately $5,000 once you drive it from the dealers’ lot; your car is now worth $20,000 but still, you owe 28,000 dollars on it.
Owing more than your car’s worth means that you’re “upside down” on the loan, which isn’t a safe situation to be in.
Making a down payment of approximately 20% ensures that even after the car’s depreciation has been considered, you won’t owe more than what the vehicle is worth. Additionally, making down payments assists you to negotiate for better and easy to manage loan terms.
How to Buy a Car with No Money Down
If you don’t have a trade-in or a down payment, it’s possible to get a novel car if your credit score is good. In case you aren’t sure about the credit score, you can always get a score at no charge to find out.
To reduce the loan costs, begin by looking for a car loan before visiting your car dealer. Visit 3 or more credit unions and banks to see the loan terms that you qualify for.
When you get the most suitable offer, request for a loan preapproval and fill the initial application. The lender lets you know the amount of cash they can lend you and the intended interest rates. Getting preapproval for car loans doesn’t mean that you must get the loan, though it gives you more negotiating strength at your car dealership.
Other Car Financing Alternatives
Many people prefer financing new cars through car dealerships since it’s the easier option. However, 3rd party financing from credit unions or banks mostly offers better financing terms than dealerships. You can try these other options:
- Get a Cheaper Vehicle
Don’t buy a car until you’ve saved enough for a down payment; buy used cars if you have to since they’re cheaper.
- Get a Car Loan Cosigner
While going for no money down option can be tempting, it’s not among the wisest financing option for a car. It could make you to owe more than your car is worth, go for other options to get a car at an affordable price.