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Is a Down Payment Always Needed to Buy a Car?

Do I Need a Down Payment to Buy a CarMany car shoppers are surprised and pleased to learn that they do not actually need a down payment to buy a car – at least if they have a squeaky-clean credit history. Given a high credit score, you will find that some car dealers and auto manufacturers will not require a down payment from you. The reason for this is that once you have proven that you are someone who pays back your loans on time, businesses will be eager to have you as a customer. Plus, many automakers are eager to sell cars, so they offer special sales incentives through their financing wings in order to entice more car-buyers – no down payment car deals are a common promotion.

Beware of Negative Equity

However, if you are someone with stellar credit, you probably are the type of consumer who knows that buying a car with nothing down is usually a bad idea. If you do this, you will be upside down for most of the time that you are paying off your car loan. This is trouble because if you owe more on your car than it is worth, you will not be able to sell it or trade it in on another vehicle without owing a deficiency balance or having the debt roll over into a new loan.  Neither scenario is especially good, to say the least.

Trade Equity and Cash Rebates

If you want to buy a car, it’s best to do what your grandpa told you and save at least 20% down first.  For a used vehicle, 10% if often sufficient.  In either case, you will be offsetting the depreciation you face over the first year of ownership.  However, there is more than one way to skin a cat.  If you have an existing vehicle to trade in, most dealers will use this as a form of down payment.  Even if it doesn’t fully your down payment – and it very well could – it will defray the expense.  Secondly, many automakers offer cash rebates on new vehicles, and many dealers will allow you to apply this cash to your down payment.  In both cases, you could end up getting financed, without actually needing a cash down payment on your car. 

Here at Keystone Auto Loans, you do not need a down payment to apply for financing.  However, we do encourage you to put money down if at all possible – either through cash, trade, or rebates – as it makes for a safer, stress-free investment.

About the Author

The author has many years of experience in automotive finance and insurance. However, each consumer's situation is unique. It is best to contact a finance specialist for further assistance.
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