Published by Uncategorizedon Nov 06, 2022 – Filed in
You’ll see ads for $ 0 less in car financing everywhere, on billboards, in magazines, inside dealerships, and wherever the car-buying public may go. But are they a good idea?
We asked our auto loan team to outline the pros and cons of no-money auto loans to provide the information needed to make a decision.
Do you have the funds to pay off the loan as agreed?
This is an essential step; you may have fantastic credit, but that doesn’t mean you can afford to make monthly payments.
The current underwriting requirement for an auto loan is a debt / income threshold of 40% or less. So, for the sake of easy illustration, if you are earning $ 10,000 a month, the maximum amount of debt you can have is $ 4,000 and that includes borrowing a new car.
The average car payout can easily reach $ 800 per month, and that doesn’t take maintenance and insurance into account. So if you have a significant amount of space in yours balanceit will make the whole car buying experience more enjoyable for everyone involved.
$ 0 Pro Down for Car Financing
There are no definitive benefits for no-money auto loans.
No waiting to save for a down payment: If you need a car now but don’t have a down payment, a $ 0 per car loan gets you what you want now.
Save your savings for something else: If you have any savings but not enough for the down payment, you can keep it safe for emergencies or until you have enough for a down payment next time.
Disadvantages of $ 0 down on car financing
However, there are some downsides to no cash on auto loans.
Higher interest rates: Some car loans with no money down can attract you higher rates because the lender bears most of the risk. The rate is their way of minimizing the potential loss in the event of a default.
Negative equity: A down payment can also insulate you from negative equity as any loss in value in the car will be offset by the money you put down. This is not a problem if you plan to keep the loan, but it could become problematic if you cash in early.
Higher credit score requirement: If the lender takes more risk, they want to make sure you’re a good bet. No declining auto loan generally has a higher credit score requirement than standard loans.
Not all lenders offer them: Not all popular lenders do not offer declining auto loans. Sometimes, you’ll need to go directly to a dealer to get what you want. We have access to some lenders willing to offer them, so call us first.
As you can see, on balance, no declining car loan has more negatives than positives. They can work in some situations, but if you have an alternative, you’ll probably be better off using it.
They can be expensive, attract higher interest rates, and you’ll have very little equity in the car for some time. They are an option to get you out of a situation, but they are not always the best option.
OR save for a down payment. Yes, it takes time, but unless you’re in a hurry or need a car right now, it makes a lot more financial sense.
If you need a no-money car loan and don’t have time to wait, contact one of our teams and we’ll help you out.
For those of you who know you are in a difficult credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!
This article was published by: Michelle Paletta by title: All you need to know
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