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Is it Possible to Get a Car Without a Down Payment?

Yes, it is possible to get a car without a down payment, but that does not mean everyone can qualify for a zero down payment loan.

“Zero Down Sign and Drive,” What’s the Catch?

Dealerships and automakers often advertize ”zero down” deals. Some of those deals even offer zero down and low interest rates. The low money down and interest rates are shouted throughout the commercial and are meant to get traffic flowing onto the lot. What you can only find mentioned in the fine print is that you must have excellent credit in order to qualify for these loans. You will know this is the case when the fine print says OAC (On Approved Credit) or WAC (With Approved Credit). In general, you will need a credit score in excess of 725 to even be considered for either zero down or zero interest. You may need a score over 780 to be offered both.

So You Can Skip the Down Payment, But Should You?

Before you buy a car without a down payment you may want to consider whether it really makes sense to do so, from a long term financial point of view. Let’s look at one point: the amount of interest paid over the life of a typical 60 month car loan. The average new car loan is right around $25,000 with an APR of 4.9 percent. If you buy that car without a down payment, you would pay $3,238.13 in interest over the life of the loan. Now, take the same loan, but put ten percent down. You would only pay $2,914.36 in interest and your payments would be $47 less each month. That’s a pretty significant difference.  On the other hand, some people would rather have that $2500 down payment safe in their savings account, in case of emergencies, but the interest accrued in savings is not likely to balance out the additional interest paid on the borrowed funds.

Other Advantages of Putting Money Down

Offering a down payment also improves your chances of being approved for a loan. Many lenders consider a down payment as a sign that you will be vested in repaying the loan and less likely to default.  Also, new cars depreciate quickly, creating negative equity for the first three to five years after you buy. If you offer a down payment, the period of time that you are upside-down on your car loan will be shorter. That will come in handy if you want to buy a different vehicle within a short time of buying.


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