Zero Down Car Deals – Explained

zero down paymentThere are a number of ways to buy a new car with no down payment.

One of the best ways is to find rebate deals like the ones we talk about on this web site because a rebate can be, and usually is, applied as a down payment.

For example, if you find a vehicle that currently has a promotional rebate of $3000, that money can be used in place of an actual cash down payment. In most cases, you would need no other down payment cash — zero down payment from you, thanks to the generosity of the car company. If you are short on cash, this is a great way to get a new car with no money down.

Another popular way to avoid a down payment is to trade a vehicle. The credit you receive from a dealer for the vehicle can act as a down payment towards the purchase of a new vehicle. There would be no need for additional cash from you. This assumes your trade vehicle is fully paid off or that your loan balance is less than your trade vehicle is worth. If your loan balance is higher, you are “upside down” and may have to make a larger down payment than you would otherwise have to make.

If you can negotiate a large discount on the price of a vehicle, assuming no trade-in vehicle, a dealer’s finance company or bank may be willing to loan you the entire purchase price without requiring a down payment. In the case of a brand-new car, this would mean a substantial discount off the MSRP sticker price. In the case of a used car, it would mean buying at a price below the vehicle’s “book value.”

Even without a rebate or trade vehicle, it’s often possible to get a loan with no down payment, although you may have to pay a higher interest rate. Your chances are better if you have a good credit score, which means the lender takes a smaller risk of you not paying off your loan.

If you know you have a good credit score (about 700+), you can ask your dealer or bank about their loan requirements. If you don’t know your credit score, you should get it before going shopping for a car loan. It’s easy enough.  If you don’t know your current credit score and rating, you can get it online. What’s your FICO score? Find out now when you check your credit report for $1 at Experian.com!

One other way to avoid a down payment is with a zero-down lease. It’s common in leasing to make no down payment, although you’ll typically make the first month’s payment and pay required official fees in cash at the time of lease signing. These are not considered down payment, however. In leasing, a down payment is called capitalized cost reduction. Car manufacturers frequently offer $0-down and $0-due-at-signing (no first month’s payment, no down payment)  as special promotional lease deals. You can find a list of current zero-down leases at Zero Down Car Leases are Back.

There are a couple of possible tradeoffs to making no down payment on a car loan or lease.

First, with no money down, monthly payments will be higher. The higher the down payment, the lower the monthly payments. This effect is greatest when leasing.

Second, since new cars depreciate rapidly, making no down payment increases the chance that the loan will be “upside down” for most of the loan term. This happens when the amount of the loan balance is greater than the value of the vehicle. It can be a problem if the car is stolen or destroyed in an accident (insurance only pays the value of the car, not the balance of the loan), or if the vehicle owner wants to sell or trade before the loan has been paid off. This is why we stress getting a rebate or large price discount if you want to make no down payment.

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