Buying a car with no money down in San Jose, CA may seem like a great idea. Unfortunately, this tactic only leads to higher costs down the road. Before you head to Stevens Creek Boulevard or San Carlos Street looking for dealerships offering zero down deals, take a look at why it might be better to have a down payment.
Why Provide a Down Payment?
When you save up money for a down payment on a vehicle, it not only lowers the amount you're borrowing, it shows the lender you're committed to successfully completing the loan. A down payment is especially important if you're struggling with bad credit.
When your credit is less than perfect, you typically need a subprime lender to get approved for auto financing. Subprime lenders look beyond your credit score to other factors in order to qualify you for financing. One of these factors is your willingness to invest your own money in the form of a down payment.
People who are reluctant to put any "skin in the game," so to speak, are less likely to be successful in completing an auto loan.
Down Payment Requirements and How to Pay
If bad credit is an issue, you generally need a subprime lender to approve you for auto financing. Not all lenders in the San Jose metro area work with problem credit, and those that do typically work through special finance dealerships.
When you visit a special finance dealer for a low down payment car loan, you're going to find that they usually require $1,000 or 10 percent of a vehicle's selling price as a down payment, whichever is less. If this seems like a lot, remember that you don't have to come up with all the money in cash.
You can also use trade-in equity, or a combination of cash and a trade-in. Using a trade-in is especially helpful if you own the car free and clear. This means the entire value in the vehicle can go toward a down payment. If you don't own your car outright, you can still use it toward a down payment as long as it's worth more than the loan balance. In this case, the dealership pays off your loan and what's left can be used as all or part of your down payment.
How a Down Payment Saves You Money
Whatever the down payment, it’s an amount that you don't have to finance. This is why the larger the down payment, the more money you save: the less you finance, the less you're paying interest on. In auto loans, interest accrues daily based on the loan balance, so the less you owe, the less interest charges pile up.
Although lenders that work with bad credit typically only require 10 percent down, making a larger down payment always helps more. A large down payment of around 20 percent can offset or even eliminate the time you owe more on your loan than the vehicle is worth, which is called having negative equity.
Find the Right Dealer in San Jose, CA
Now that you know a low down payment isn't the better option, you can understand why making an investment like this can lead to your own car loan success. If you aren't sure where to turn for a special finance dealer in the San Jose area, let Drivers Lane help.
We work with a large network of dealerships in California and across the country that have the lending resources available to help people who are struggling with credit issues. Simply fill out our no-obligation auto loan request form and we'll help guide you to a local dealer. Don't delay, get started right now!