Requirements For No Money Down Auto Loans
If a no-money down auto loan is what you seek, you need to know the requirements for approval. These loans are usually used by those who can't afford to plunk down a huge down payment or those who have a car that they want to trade in, or in some cases-those who don't want to invest a whole lot in a car that's just going to lose value as time goes by. Here are some of the loan requirements you'll need to fulfill.
Loans Are Easier to Get If You Have Good Credit
Most (if not all) car dealers have no-money-down loans available for those with stellar credit. The same is true for most banks and credit unions, so it is possible to buy a car from a private party with no money down also. Generally, you will need a FICO score of 700 or more to get a no-money down loan and you will need to buy a vehicle at or a bit below its Kelley Blue Book value. If you are paying too much, chances are only a dealer will offer you a 100 percent financing loan. Banks and other lenders are tightening their guidelines for zero-down loans, so you may have to have to use a trade in lieu of a down payment.
Lenders may not tell you that in a 100 percent financing deal or no money down auto loan, your credit score will likely go down and stay there for a while because the lack of a down payment presents a greater credit risk on paper. There are also other liabilities associated with showing a lender that you don't have a down payment on a vehicle.
What No-Money Down Means to the Lender
Most buyers recognize that providing money down saves them a great deal of money on interest payments. If the customer doesn't have a down payment, they may want to go with a no-money down auto loan. However, if they do have the resources to offer a down payment, and a dealer or other lender talks them into 100 percent financing, that buyer got taken advantage of by not knowing the facts about their auto loan and its overall cost.
Filling Out the Papers
Be prepared—bring at least your last two paycheck stubs to illustrate how much you've earned for the year so far. If you are in business for yourself, bring your last two tax returns. The lender will also look at your credit report, so before you apply, make sure that you've looked it over and that you've corrected any errors. Also, you will need some information about the car you want, including the purchase price, the year, make, model and mileage, and possibly the vehicle identification number. When you are ready to get the loan, you will also need proof of insurance.
Whether Interest Rates Will Change
Some types of auto loans are called fixed rate loans, where buyers can predict what they will pay overall. Others are variable rate auto loans, where the interest rates can change due to fluctuations in the U.S. prime lending rate. Other car loan agreements include interest rates that are designed to change at a particular point. It's important to read your agreement carefully and point out any possible interest rate changes that could leave you with higher monthly payments down the road.
How Interest Rates Compare
Car shoppers should look at a no-money down auto loan and the interest rates attached to it, in contrast with the same auto loan where they can put $2000-$3000 down. What you'll most likely see is that interest rates go down for the financing deal that includes the larger down payment, because the down payment makes the loan less of a risk for a lender. It invests the buyer in the car deal at the outset, shows an ability to save, and ensures that the lender will get more of their money back. It also statistically lessens the chances of default or nonpayment on the loan.