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The down payment plays a vital role when qualifying for a car loan, especially if you have less than perfect credit. The student borrowers or borrowers with low income, often due to inadequate finance, do not wish to utilize their own cash as a down payment. But many people carry this myth that cash is the only form of down payment. There are few other options of paying zero down which are discussed in the upcoming Para. Well, quite a lot of car dealers and financial institutes can offer zero down car loans regardless of your credit history, however you may have to pay higher rates. In addition to that you may not get your favorable terms while the chances of being ripped-off are more and so it’s more of gambling.
One way of the best ways, if you have a car to trade-in is using a combination of trade-in and car loan with no money down. Whereby, you need to trade-in your used car and have the appraised value of the old vehicle deducted from the price of the new car. Most of the car financing companies allow considering trade value as down payment to meet the minimum criteria of money down. Thus, becomes beneficial for both the car dealer and the borrower.
For Instance: If you wish to buy a car for $12000 with no down and have a trade-in worth $100. However, you are required to put down $1000 on the selling price as per the financing terms. So, what the dealer will do is, raise the selling price to $13000 and show that you put down $1100 since the trade value is $100. Whereby, your net purchase price comes to 11,900 i.e. $12000 minus $100 from trade in. Thus your purchase price remains the same as it would have been if the dealer sold the car at $12000 and gave $100 as trade-in.
In this way, it can help you to secure a car loan with zero down and bad or no credit history. Moreover, it can give you flexible terms with lower rates. If the car you are trading is not paid in full, that is the only time you need to either go with other options or make a down payment.
Another option you get if you don't have a car to trade or the car you are thinking to trade in is not fully paid is new car rebate where many lenders allow considering the new car rebates as down payment. These rebates are offer by the lender to help that car buyers meet their minimum required down payment.
There are financing companies offering auto loan programs with zero money down and if you have a vehicle to trade in or buy a new car with a rebate you are most likely get more favorable terms from lenders with lower rates. However, its advisable to put at least 20% money down as there are chance of being upside down or having negative equity where you owe more than the car's worth, if the value of the car depreciate. For the reason, by paying no money down you are starting with zero equity in the vehicle.
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