Here's Everything You Need to Know About No-Money-Down Car Loans

Here's Everything You Need to Know About No-Money-Down Car Loans

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Buying a vehicle can be exciting, confusing, and problematic all at once. When you zero in on a specific make and model, perform your research and prepare to take a test drive, it can be a lot of fun. Sometimes, details like financing and where exactly to buy wind up taking a back seat.

But how to pay for your vehicle and where to buy it are also essential considerations and deserve serious attention. 

Since most vehicles cost tens of thousands of dollars, financing is an excellent idea to take the initial hit off your wallet and pay your obligation over time. But car loans have several elements to contemplate, like interest rate, term length, and additional fees.

And what if you don't have a large amount of savings but want to move forward with a purchase? Can you get a car with no down payment?

With a no-money-down car loan, you can buy the new car you want while making no down payment. 

But what are the details on no-money-down car loans, and are they a wise financial decision?

Let's look closer at no-money-down car loans, so you have the information you need before buying.

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What are no-money-down car loans?

No-money-down car loans allow people to buy a vehicle without a down payment. Though down payments are beneficial in securing a loan and lowering monthly payments, specific buyers cannot afford one. Maybe someone has good cash flow yet a small amount of savings, preventing them from contributing an initial amount towards the purchase.

Whatever the reason, no-money-down car loans finance the entire transaction so customers can get behind the wheel with no upfront cost. While convenient initially, no-money-down car loans also have drawbacks. Many fees associated with a vehicle purchase are usually included in the loan amount and increase your monthly payment. And since a down payment gives lenders a sense of security, not making one may erode their trust and increase your interest rate. 

When you're buying a car, several details need your attention. Securing financing at a reasonable rate is tedious and time-consuming. Wouldn't it be nice to know someone you can trust to help you find the best rate? Shift works with a network of trusted lenders, finding the best deal for you.

Things to remember about no-money-down car loans

Though no-money-down car loans allow you to drive away in the vehicle you want while paying nothing up front, they have drawbacks.

Since a down payment reduces the total auto loan, it also lowers your monthly payments. When borrowers don't pay anything at the time of purchase, payments will be more over the long term. 

Additional costs like tax, title, and tags are added to the total cost, resulting in the "out the door" price. You may find a vehicle you like, and the price seems to fit your budget, but the "out the door" price is several thousand dollars more. 

Depreciation is another factor to take into consideration if you're thinking about a no-money-down car loan. When you finance the entirety of your vehicle purchase, you run the risk of its value depreciating to a lower value than you currently owe. In other words, the remainder of your loan payments might be $30,000, yet the car depreciates to $20,000. In financial terms, this is known as being "underwater" and is a situation that's best avoided. 

While no-money-down car loans may seem attractive at the time you purchase a car, when the excitement of buying wears off, you'll have an expensive obligation. 

You've decided on the make and model you want for a used car. Now what? Where can you turn for the best selection, prices, and service? Shift has a wide selection of quality used vehicles on its easy-to-use website. And you'll get a fair, no-haggle price driven by powerful machine learning algorithms and tons of data. 

Ways to reduce your loan amount

If you decide to go with a no-money-down car loan, there are several ways to lower the total amount you'll owe.

First, check with different lenders ahead of time and compare auto financing rates. See the terms and amounts you qualify for with your credit score, fill out an application to get pre-approved. While pre-approval doesn't bind you to a loan, it shows sellers you're serious and lets you pay more attention to things like vehicle pricing, features, and test drives. Alternatively, you can apply once with Shift and get pre-approved from our trusted network of lenders – including Bank of America and Capital One – in minutes.

Another way to lower your financial commitment is seeking vehicles without extra options. Optional add-ons like unique exterior trim, performance packages, or upgraded wheels add to the price and, in some cases, don't do a lot to change the vehicle. No matter what options a car has, the basic design and structure are identical, so you're still getting the same vehicle, in essence.

Whether you're looking to head for the mountains in a crossover SUV like the Subaru Outback or venture out on twisty roads in a sports car, Shift has what you need. Certified mechanics perform 150-point inspections on every vehicle sold, ensuring you get a vehicle that lasts mile after mile. 

2017 Subaru Outback Limited (from $25,950)

2017 Subaru Outback Limited (from $25,950)
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Other financing options

While a no-money-down car loan may seem like a good idea initially, in the end, other alternatives may be a better financial decision.

Consider waiting a while and saving money for a small down payment. Making a small down payment might help you secure financing and more favorable terms. Putting just a small amount down can also benefit you in the long haul, reducing the total sum owed as well as giving you smaller monthly payments. 

Try getting a co-signer on your loan. A co-signer increases the level of trust with a lender and can help you not only get approved but lower your interest rates.

Look at vehicles at a lower price point. Though cars are exciting and fun to drive, buying what you can afford can lessen financial strain. If you find an appealing vehicle at an economical price, your monthly obligation will be more manageable even if you don't make a down payment. 

Interested in a used Subaru Forester, but you've never driven one? When you shop with Shift, there's no need to worry. In some regions, a Shift concierge will drive the vehicle to you, allowing you to take a test drive before signing the papers.

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No-money-down car loans in summary

While on the surface, no-money-down car loans may seem easy and convenient, in the end, they increase your financial obligation. 

Financial considerations like "out the door" price and loan terms are both less favorable when you decide to use a no-money-down car loan.

Waiting a while to save up for a down payment or getting a trusted family member or friend to co-sign a loan are both options that can lower your financial burden and still get you behind the wheel of a new vehicle.

With Shift's experience and expertise selling used vehicles, they're your one-stop shop for your next automotive purchase. You can even buy the car you want from the comfort of your own home. And Shift has best-in-industry service contracts, so you know your vehicle is good to go, mile after mile. 

2020 Subaru Forester Premium (from $30,950)

2020 Subaru Forester Premium (from $30,950)
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30-Day warranty
Free 7-day returns
Free 7-day trial return
30-days warranty
No-Contact Test Drives
No-Contact Test Drives
Shop Used Subaru Forester
2020 Subaru Forester Premium (from $30,950)
30-Day warranty
Free 7-day return
Free 7-day trial return
30-days warranty
No-Contact Test Drives
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Shop Used Subaru Forester
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Author
Shift Editorial Team