A car can be considered a major investment, mainly because its purchase requires a hefty sum from the buyer. The down payment alone can be a financial burden to the individual. For new vehicles, the down payment required is usually 20% of the purchase price; for used vehicles, it can range from 25% to 50% of the vehicle's value. Car buyers usually have to save up for a down payment first before they can actually start shopping for a set of wheels.
However, zero down car loans make it possible for buyers to make the car purchase even if they have no money saved for a down payment. As the name suggests, this kind of loan does not require the buyer to put down a considerable amount of money, letting him or her finance the total cost of the vehicle. A zero down car loan is ideal for those individuals who badly need to buy a car but do not have enough cash for a deposit. There are instances wherein individuals are forced to buy a car at unexpected times. Say for instance that a person's car broke down and the vehicle is deemed non-drivable. If that person needs a car to get to and from work or school, he or she will be forced to make a car purchase in a time when he or she is financially unable to. In times like these, applying for a zero down car loan is best. With a zero down auto loan, a person can immediately purchase and drive a car without worrying about money.
Zero down car loans may be great, but they do have disadvantages. One major problem with zero down auto loans is high interest rates. A down payment enables any borrower to obtain auto financing at a lower rate. Also, the bigger the amount put down by the buyer, the lower the monthly payments he or she will have. On the contrary, no down payment naturally increases both the interest charge and the monthly payments.
The bigger problem with zero down car loans is that the possibility of paying for an 'upside-down' loan. An upside-down loan is where the borrower owes more money that the car is actually worth. Car buyers should know that vehicles depreciate rapidly after they are purchased. If a vehicle is financed at its full purchase price, the car buyer can already owe the lender or dealership more as soon the vehicle is driven off the lot. Having no down payment can also cost the car buyer if and when he or she decides to sell or trade-in the car prior to settling the loan. The difference between the amount owed and the vehicle's actual worth will either be financed into a new loan or will paid by the individual.
Car buyers are advised to always pay down payment in order to avoid more expenses in the future. It is always better to save money for a down payment first before shopping around. Taking out a zero down auto loan must be considered only if there is no other choice.