Most people love the feeling of getting behind the wheel of a new car. It’s the chance to make new memories while seeing familiar sights. However, some parts of getting a new vehicle that people hate are the down payment and the idea of having a monthly car note. Of course, most people prepare in advance, but paying a large amount upfront can be a real budget killer. Luckily, there are ways you could potentially skip a down payment when you finance your next car.
What is the purpose of a down payment for a car
Many drivers may wonder why financial institutions and dealerships require a down payment for a car. Typically, this should be a mutually beneficial endeavor. For the buyer, paying a down payment is supposed to reduce your balance, which means you should pay less interest. This can also allow for lower monthly car notes as well as increase your chance of getting financing.
As for the lender, having customers pay a lump sum helps remove some of the risks they assume when approving auto loans. It’s a bit of a show of good faith since the buyer wouldn’t get the car down payment back if they default on the loan.
Despite down payments being beneficial for buyers, they can be burdensome. This is especially true for people who buy a car because something went wrong with their previous one. Luckily, there are ways to avoid one.
Getting higher monthly payments can help you avoid a car down payment
One way to avoid a down payment for a car is to negotiate higher monthly payments. As mentioned, many buyers will pay more upfront in order to have a lower monthly car note. This process would be the reverse of that. However, buyers should know that having a higher monthly payment will typically mean you have a higher interest rate, so be careful.
Work on your credit score
Lenders like down payments because they remove some of their risk. However, a high credit score can do the same thing, which means this is one way to avoid a down payment. According to Bright Money, you’ll typically need a credit score in the 700 range to skip a down payment on a car. However, this will depend on the lender.
Use a co-signer
Another way to potentially get a vehicle loan with no down payment is to use a co-signer. Typically, this would be a family member or close friend with better credit than you. Of course, this is a massive risk for people, so finding a co-buyer may not be easy.
There are many pros and cons to paying a down payment for a car. However, this is something many people would like to skip in the car-buying process, even if it means they may have to pay a higher car note each month.
