If you’re looking at buying a new car, you know just how expensive the entire process is. From choosing a car with a price tag of tens of thousands of dollars to the interest on your loan, just trying to save up for the down payment is difficult.
It is possible to get an auto loan for any kind of car without a down payment. But in order to find these lesser-known loans, you’ll need to know exactly where to look.
Down Payments Aren’t Required
One of the most annoying aspects of buying a car is the down payment. In order to get financing from the auto dealership or another lender of your choice, you’ll be asked how much you plan on putting down as a down payment. And the amount you offer can make a serious difference in everything from the loan you get to the interest you pay in the long run.
Making a down payment is important, and it can seem crucial. After all, many dealerships won’t let you drive off the lot in a new car unless you hand over a down payment or trade-in another car to act as the down payment. That’s why it’s so surprising for many buyers to learn a little secret: you don’t actually need to make a down payment.
Why is the down payment so important if you don’t even need to make one? According to Investopedia, a down payment is recommended by all dealerships and lenders because it lowers your monthly payments. It’s common for people to put down 20 percent of the new car’s cost, but Edmunds reports that as cars become more expensive, more and more people are putting down less.
But there’s no rule or law that says you have to put down any amount at all. You can purchase a car without spending a single dollar on a down payment – it just means that you’ll pay more each month, along with potentially higher fees and rates.
So, how can you skip the down payment altogether when buying a new car? Here’s what you need to know.
Know Your Credit Score
In order to avoid a down payment, you’ll need to prove to lenders you’ll pay your bills on time. Investopedia writes that individuals with a credit score of 680 or higher are the most likely to persuade a lender to accept no down payment.
Your credit score determines your auto loan. Your credit score will be the factor that helps you get a loan with no down payment and an average interest rate. And your credit history will also help determine what you wind up paying monthly for a new car without a down payment.
Just make sure you consider interest when you’re looking for a no down payment loan. As Lending Tree explains, the biggest factor is the interest rate. No down payment loans typically have high APRs, and they aren’t available from all lenders. You’ll want to be extra careful when looking at your loan terms if you’re applying for a zero-down auto loan so you can avoid paying a much higher interest rate.
Make Sure to Shop Around
Another very important step in looking for auto loans that don’t require a down payment is to make sure you take the time to compare different loans from different lenders. You want to shop around and compare what’s available before making a decision and using a specific loan to buy your next car.
As mentioned above, the interest rate is a hugely important factor. If you accept a loan with a higher APR, you’ll have to spend additional money over the lifetime of the loan – and you might wind up paying significantly more than what the car is worth. To avoid this, make sure you consider different lenders and different loans.
You should shop around for financing like you shopped around for the car you’re buying. Speak with different lenders and ask about zero-down loans or loans that don’t require a down payment. And don’t look into the financing at the dealership only. You can also visit your bank, other local banks, and credit unions to find other loans and options.
As you shop around, don’t be afraid to use your loan offers to get a better deal. If you have multiple options, you’ll know your creditworthy. And this means you can use your loan offers to negotiate with each lender, seeing if you can get a better (and lower) interest rate, a normal auto loan without a down payment, or even a better deal on your overall package from the dealership. You don’t have to settle when you’re skipping the down payment, as long as you make sure to comparison shop.