It’s a phrase we hear constantly when it comes to cars: No Money Down! But what does that mean? Do you qualify? Is it a deal you should accept if you do? Here’s what you need to know about bad credit car loans with no money down.
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What Is “No Money Down?”
“No money down” is, essentially, the car dealership forgoing a request for the down payment. In most cases, a down payment of 20% is required for financing, so being able to get a car without paying that 20% is, for many, an option to consider and a strong sales pitch for many car dealerships.
Bad credit car loans with no money down generally exist because it can be difficult for those on a budget to get 20% for a new car saved up. Being able to avoid that cost is generally the only way some of us can even afford a car in the first place, especially if we need one quickly to get to work or to get around. But taking a no money down deal shouldn’t be something you consider unless you absolutely need it: Not making a down payment can have enormous drawbacks that won’t be obvious until much further down the road.
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Pay Now, Or Pay Later
The most fundamental problem with “no money down” is that you’ll be borrowing more up front, and that means you’ll have a bigger car loan to pay off. That cascades all the way through your loan, in ways you should understand before you accept the deal.
The best auto loan is one where you borrow as little as possible for the lowest possible interest rate and the shortest possible term. A no money down loan increases how much you have to borrow, clearly, but it also means you have a higher amount to pay interest on across the life of the loan. Ultimately, you’re still paying that 20%; you’re just doing it on a month-by-month basis. Worse, it can stretch out the term of the loan, especially since you’ll need to fit a monthly payment into your budget, so you’ll be paying more interest for longer, driving up the overall cost of the car.
Secondly, “no money down” can something of a lure for business as opposed to a deal you can get. Dealerships know that once they get you in the door, that’s half the sale right there, even if they bring you in under false pretenses. Be wary of deals being offered with a lot of fine print, or that seem more interested to bring you in than offering you a real deal.
In the end, a no money down deal is something you shouldn’t go into without being aware of what, precisely, you’ll be getting into financially. It might be worth, instead, negotiating for a lower down payment such at 10% or 15%, or looking for a car that has a down payment you can afford. Just remember that with no money down, the real statement should be “No money down … right now.”
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