Some would say that those who choose a no money down auto loan for vehicle financing are starting with the deck stacked against them, since making a down payment on a vehicle is one of the best ways to decrease interest rates and payments, and otherwise lower lender and borrower risk. However, if you can’t provide a down payment, there are still ways to optimize 100% auto financing to avoid excessive debt in new or used car loans. Here are some ways to get the best loans with no money down.
A huge number of bad debt situations are caused by consumers simply over-buying on the cars and trucks they use to get around. Dealers or other lenders may try to upsell customers, but those who know what they can work into their budget have a better chance of successfully paying off the loan.
Keeping a loan to a shorter term is a good way to decrease interest payments and avoid negative equity, where declining value in a vehicle can force the owner to spend even more money. Stay away from long term loans (over 3 or 4 years) to avoid some bad debt situations.
One way to qualify for great interest rates without a down payment is to show the lender that you have excellent credit, and enough income to reasonably pay off higher monthly payments. These two items are critical for getting reasonable interest rates that won’t leave you snowed under in debt.
Lots of customers who want to be able to predict what they will pay choose fixed rate auto loans over variable rate auto loans, because in the latter type of loan, interest rates can change according to standard market rates. Another thing you want to see and avoid is loan agreements where a lower interest rate spikes toward the end of the loan term. Lenders who include these elements in the loan often do not have the borrower’s best interests in mind.
To forward thinking buyers, prepayment penalties on auto loans are just a way for a lender to make sure they get their interest money. Paying off a loan quickly means less money out of the buyer’s pocket, and less chance of losing a vehicle due to nonpayment, or ending up with a worthless vehicle that you still owe a lot of money on. Paying the loan off quicker should not incur penalties, but some loan agreements include this, to the benefit of the lender.
In general, a no money down auto loan is not a great option for getting the best interest rates and lowest overall payment. However, with some good research, a family or individual driver might be able to find loan agreements that work for them.