Zero Down Auto Loans – The Risks Vs the Rewards

Unfortunately, the economic recession has sapped the savings accounts of many Americans. Whether the issue is investments gone awry, lost jobs, or helping to support family members in crisis, few consumers have the same amount of monetary cushion they used to have. This lack of readily available funds can present a significant obstacle to buying a new car. Sure, you can finance your new vehicle, but lender or dealer is almost surely going to ask for a minimum down payment. How much? Typically 10% or more of the vehicle’s purchase price, while 20% is ideal.

This requirement leaves an ever-rising number of car shoppers searching for car loans with zero cash down. These are often referred to as “zero down car loans,” and they are not always easy to find. Often they are associated with dealer sales promotions, and you might hear of them by tuning into TV, radio, and online advertisements for these deals. You can also choose to apply for financing pre-approval via a web service that specializes in matching willing lenders to applicants with down payment to offer. But finding such a zero down car deal is only half the question. The other is this: is a zero down auto financing really the right choice for you?

The Rewards of Zero Down Auto Financing

Obviously, the primary advantage of buying a car with zero down is the fact that you can get behind the wheel of a new car without having to outlay a substantial amount of hard-earned cash. This is especially helpful if you simply do not have the money for a down payment available. For people who really need a new (or at least new to them) car, and fast, this might be the only option. Some people need a new car right away to continue commuting to work, transporting a family member for medical care, or running important errands for work or home. But for everyone whose need for a car is not hypercritical, we must ask the question: do the costs outweigh the benefits?

The Risks of Zero Down Car Financing

Lenders do not ask for down payments simply to be greedy. They ask for them to decrease both their own risk and that of their lenders. You see, when you buy a new car it almost immediately drops in value — from its retail value to its wholesale value. And this immediate rate of depreciation can be over 20% in the first year alone. So the traditional 20% down payment effectively covers this depreciation, meaning you can finance an amount that is commensurate with the value of your vehicle. Otherwise, you could end up owing more on your car loan than the car itself is worth. That’s a risk pickle to put yourself in, and it’s riskier for the lender as well

Purchasing a new car or truck with zero cash down not only makes the loan larger, it increases the payment amounts as well. So you must be comfortable with the fact that although your car cost less initially, it will cost you more per month than you would otherwise pay if you had put money down.

Ultimately, the decision as to whether zero down car loans will be right for you depends on your needs, your budget, your credit, and your future plans. Just be sure to research your options, weigh the costs and benefits, and avoid being hasty in making your decision.