Zero Down and Drive – What’s the Catch?
When it comes to buying a new car, one of the major hurdles for many of us is putting enough money down. Most dealers prefer a down payment of 20%, and many require at least 10%, and given that the average new car in 2010, according to the National Automobile Dealers Association (NADA), costs over $28,000, that’s a down payment of $2800 to $5600. That’s a serious amount of cash at your disposal, right?
For most of us, it could take months, if not years, to set aside that much money. And what about unexpected expenses that creep up, draining the funds you’ve been setting aside for that new car? For some of us, the only viable options seems to be to buy a car with zero down payment. You’ve heard the offers before: Zero Down and Drive! But what’s the catch when it comes to no down payment sales offers? There must be one, right?
The catch is negative equity. Basically, a down payment allows you to finance less than the full amount of the vehicle. This is great because most vehicles depreciate rather quickly. If you finance 100% of the vehicle, then the $28,000 that you owe can quickly become much more than the vehicle is actually worth, and none of us want to owe $25,000-plus on a vehicle that’s only worth $20,000. What if you want to sell the vehicle? What if you want to trade in for a new one? In both cases, you’ll find yourself in a financial hole known as negative equity, or more colloquially: being upside down on your car loan.
So yes: there is a catch to no money down car buying. But if you want to “sign and drive with no money down,” this is the cost.
