No Money Down Car Loans
One of the hardest hurdles to overcome before buying a car is the down payment. Luckily, some lenders offer what are known as “No Money Down Car Loans.” These loans do not require any down payment to purchase a car. As with any financing, there are benefits and drawbacks to the option of no money down car loans.
Benefits of No Money Down Car Loans
- You will be able to buy a car without having to spend your cash reserve.
Drawbacks of No Money Down Car Loans
- It is easy to become upside down on this type of loan because cars depreciate so quickly, and you could find yourself in a situation where you owe more than the car is worth.
- Interest rates on no money down car loans are typically higher because lenders see them as riskier loans.
- The principle loan amount, and by extension monthly payments, are higher because there is no large down payment taken out of the loan amount.
No money down car loans, also known as zero down or no cash down car loans, are often only offered to borrowers with good credit (700 and above). Zero down loans will be easier to get if the lender thinks you are paying a good price for the car, or if you have a trade-in and are planning to go to a dealership. You will also probably be required to provide pay stubs to verify you make enough to pay the loan back. If you are looking into getting a no money down car loan, make sure you comparison shop to ensure you get the best possible interest rate. LendingTree will allow you to shop with multiple lenders for free and has a wide range of lenders, many of whom offer no cash down programs.
How to Get Out of a No Money Down Car Loan
If you currently have a no money down car loan and are looking for other options, do not worry. There are a few avenues to rectify your situation. One is to make higher payments than the loan requires in order to shorten the life of the loan and pay less interest on the principal. However, before you take this step, be sure there are no prepayment penalties in your loan contract that will charge you for paying the loan off early.
Another option is to refinance your no money down car loan for a loan with a better interest rate and terms. You can simply refinance your loan and begin payments with enhanced terms, but a better way to do this is by having some cash saved up before you refinance. Then, make a refinance deal for improved conditions, and after the deal is completed, pay your lender the lump sum of cash. The cash that you plan on using to pay off the loan will not be a discussed part of the contract and you will be able to decrease your principal by a large amount, thereby decreasing the amount of time you will be making payments for, as well as decreasing how much interest you will pay over the life of the loan. If you take this strategy, be sure to refinance for a loan without prepayment penalties. As with any loan, you should comparison shop lenders to guarantee you are getting the best deal.
No matter what type of loan you have, it is important that you make payments in full and on time. If something comes up and you are unable to make a payment, you should speak to your lender. This could help you avoid dings on your credit score, and the lender will be less likely to repossess if they are kept in the know about potentially late payments. Be sure the loans you take on are ones that you can afford. LendingTree’s calculators can help you decide how much of a loan you can take on and ensure that you will be making payments you can fit in your budget.