It’s one of the most common phrasing in car advertisements: “Get a brand new car for no money down!” And it can lead many of us, especially those of us who need a new car quickly, to wonder if it’s actually true, or if there’s a lot of fine print. The truth is that you can, in fact, get a car for no money down. But whether you want to is another matter entirely.
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No Money Down, But Plenty Down Later
No money down, as a rule, involves, well, no money down: You sign up for financing through the dealership and part of the deal is that you won’t have to place a down payment. Considering that a down payment is generally 20% of the asking price, that can have considerable appeal to those of us who need a new car and may not be able to put together that much cash on short notice.
It’s also rarely a scam, despite what some may claim. The truth is that no smart dealership has any interest in selling you a car you can’t afford to pay for; it costs them money in the long run and it leaves them with “used” cars that they can’t sell, or might get tied up in court for years. And yes, you might be able to get a no money down deal even if your credit isn’t great; while policies vary from dealer to dealer, many are willing to work with you if you can demonstrate you can afford the loan through pay stubs, tax returns, and the like.
But, just like anything else, there’s a catch: You’ll be borrowing more money.
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That’s not a minor issue. For example, say you want a car that costs $10,000, and you put down that 20% on a loan for 10% over four years. That works out to a monthly payment of $202, and a total cost of $11,696 for your $10,000 car. But the same car, purchased with no money down, has a monthly payment of $254. Work out the math, and that means you’ll be paying nearly $2400 more in interest for your car; it’d actually be cheaper to put down the $2000 up front, in the long run!
And those numbers just keep rising the more you have to borrow. No money down can work depending on your needs, but it shouldn’t be your first option.
What Should You Do Instead?
If you have to pay the full cost of the car loan with financing, start by finding your financing first. Apply to multiple lenders and compare the terms, interest rates, and how much they’ll allow you to borrow based on your credit. Then, use that to determine which cars you can afford, depending on both your needs and the amount of financing available to you.
Finally, be smart and trust yourself. If something just doesn’t feel like it’ll work for you, then you shouldn’t sign on the dotted line. Don’t forget, in the end: It’s your money.