Down payment vs. $0 down payment car loans
You can decide to provide a down payment for your car loan or you can forgo this step and apply for $0 down car financing. Here’s the difference:
Buying a car with a down payment
With a down payment, even a small one, you can save hundreds of dollars in interest. You’re lowering the cost of your monthly payment because you’re borrowing less to start, and your lender may even charge you a lower APR. A big down payment can also help to offset less-than-perfect credit scores or a lower monthly income. Typically, a down payment is 20% of your loan amount, but lenders accept down payments as small as 10%.
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Buying a car with a $0 down payment
With a no down payment car loan, you’re financing your car without any upfront financial commitment on your part. You’ll sign up for your financing and drive your new car off the lot without paying a penny until your car payments kick in. These loans come with a price though: lenders may quote a higher interest rate when you don’t have a down payment.
You’re also on the hook to pay for title and registration fees, sales tax and other loan fees. If you don’t have a down payment, these fees will be added to your loan, which can make it easy to borrow way more than your car is worth. No down payment car loans are also harder to qualify for because lenders are relying solely on your credit history to decide if you’re a safe bet to lend to.