How to buy your first car
Find out what you need to research ahead of time, and how to stay one step ahead of the dealer.The key to a successful buy is to first determine how much you can afford. Your credit score, monthly income and the type of car you want should all factor into this decision. The key is to strike a balance between fitting your budget and finding a car right for your needs.
If you want to buy a car and can’t afford its total cost, a zero-down car loan can help you immensely. A zero-down car loan is one that doesn’t require a down payment and covers the cost of the entire car – including its taxes, fees, and registration costs. But how does a car buyer qualify for a zero-down loan, and is it a good idea to get one?
How do I qualify for a zero-down car loan? © Provided by MotorBiscuit A customer signs a contract | Guenter Schiffmann/Bloomberg via Getty Images
For a car buyer to qualify for a zero-down car loan, most banks want them to have a credit score of at least 600 or higher. But your credit score isn’t the only deciding factor. The banks, or lenders, will also look into your credit history, debt-to-income ratio, and income. If these factors are in good standing, you will have greater odds of receiving a zero-down car loan.
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The benefits of a zero-down car loan © Provided by MotorBiscuit A 0% financing sign on a car dealership window. | Tim Boyle/Getty Images
There are a few perks to buying a car with a zero-down loan. According to Capital One, some of the main benefits include:
- You can buy a car without any money on hand, which makes buying a car cheaper in the short term.
- You can spend the money that you would have spent on a down payment on something else or save it.
- Having an auto loan will help improve your overall credit score
By taking out a zero-down auto loan, you’ll be able to purchase a car outright and increase your likelihood of obtaining another loan in the future. However, there are some cons to this type of loan as well.
The drawbacks of taking out a zero-down loan © Provided by MotorBiscuit A customer talks with a sales consultant. | J. Conrad Williams Jr./Newsday RM via Getty Images
It may sound like automotive heaven to buy a car without whipping out your cold hard cash, but it’s not the perfect method. Here are the potential drawbacks of using this method:
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- You will pay more interest over time: Remember that a zero-down auto loan means you won’t have a down payment, but you will still have the interest to pay. Since there’s a larger principal interest amount, you’ll likely pay more interest over time.
- Higher interest rate: To add to that last point, a no-money car loan will typically have a higher interest rate since you’re not putting in any collateral, and the loan-to-value ratio will be higher.
- Upside down on car loan: Since the loan amount on the car will be higher than if you were to put a down payment, and the car’s value depreciates, you’re more likely to be upside on the loan.
- Higher monthly payment: With no money down, the loan amount will be higher, leading to higher monthly payments.
Is it worth it to get a zero-down loan?
Yes, as long as you can afford the monthly payments. One key component of obtaining a zero-down loan is to buy a car that you can comfortably afford. That way, you can ensure that you’ll be able to pay the loan off in the necessary amount of time. Otherwise, it could be a wise idea to put a down payment on a car loan if you’re planning to buy a more expensive car or need lower monthly payments.
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By Pang-Chieh HoThis week our experts reveal how to spot hidden problems in a used car. Also in this issue: Can coffee prevent cancer, and how to see if your data has been compromised.THE BIG STOThis week our experts reveal how to spot hidden problems in a used car. Also in this issue: Can coffee prevent cancer, and how to see if your data has been compromised.