There are numerous ways to finance a car, and one of the easiest ways is a no-money-down loan.
Many dealerships advertise their no-money-down vehicle loans as an easy solution for someone who can't seem to save up enough money before heading into the showroom. In theory, it sounds great: Buy a car now instead of later, and you don't have to stress about saving up any cash at all.
In practice, this type of financing often leads buyers down a more complicated financial road -- where they end up just as broke as they would be if they had saved up for their dream cars in advance. When dealer ads say "no money down," they actually mean that there is no money down beyond the cost of taxes and fees.
Cars for 0 down, for the most part, means that buyers pay no money beyond tax and tag fees to purchase their vehicles -- but this is where lenders' generosity typically ends. In order to comply with lending regulations set by the Federal Trade Commission (FTC), automakers have to allow customers at least three days from when they buy a car until when they have to accept a dealer's terms.
No Money Down + 0 Percent Interest
In this scenario, you put down no money at all when you buy a car -- but in order to get such an enticing interest rate, dealerships require buyers to use their lending partners' financing which means that you are basically playing by the dealership's rules.
If they don't accept your credit history or score (or if you can't provide enough documentation for them), then tough luck -- you'll end up paying more than what it would cost if you had financed through your own bank since lenders typically raise rates after customers sign on the dotted line.
Even worse, the car you bought will end up being more expensive on a monthly basis.
No Money Down + Dealer-Charged Interest
Another no-money-down situation happens when you buy your vehicle and leave with your keys in hand before financing terms are agreed upon -- but this is not without risk. Again, dealerships typically wait three or four days before finalizing what rate or finance plan you'll be using, which means there's also an undisclosed period of time where you could be hit with dealer fees for being late on a payment or missing one entirely.
Dealer fees and holdbacks are amounts of money that have been cut from the bottom line to help encourage salespeople to sell more cars -- but they're often not disclosed as such.
To keep customers from double-checking their math, many finance managers will wait until the very end of the transaction to tell buyers about undisclosed fees that could affect whether they buy or walk away from vehicle purchase. But what if you miss a payment?
The good news is no matter how large your final monthly payment might be with a dealer holdback, if you miss a payment, you'll only owe the regular monthly rate plus $15 -- regardless of the holdback amount. That means you won't be penalized for your oversight. However, dealerships can still report late payments to credit bureaus, which could result in a blemished record that could affect future loan applications and lower your score -- albeit temporarily.
If you're a math whiz, then paying no money down is a way to lower your monthly payment and increase your cash flow. But if you don't have the discipline to save for a down payment, you might as well forget about 0 percent interest rates on cars for 0 down because those deals really aren't as appealing as they seem.
In most cases, dealerships make more money from these programs compared to other types of financing plans.
" We have a huge network of lenders and dealers so that whichever lender is ready to offer your loan at great rates will be tuned in touch with us! "
Just remember this: No matter how much you think you're saving by not putting any money down, it's going towards something -- either ballooning out the cost of your car or into a dealer holdback account that will come back around when you fall behind on payments.