Should You Put a Down Payment on a Used Car?

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The decision to make a down payment on a vehicle or not is a tricky one. When buying a house, you rarely have the option to skip a down payment. Normally, if you are buying a home you need to put money down. However, the process of financing a vehicle is much different from a mortgage. It is possible to buy a car with little or even zero money down. Although there are disadvantages to not putting a down payment on the vehicle you’ve been approved for financing, there are some reasons that you would want to. Lenders are quite willing to let customers buy a used car with no down payment depending on that customer’s credit situation.

The real question is whether or not you should skip a down payment if you have the option.

Realize That You Do Have a Choice

Many Canadians believe that when they apply for car financing, they’ll be required to put a down payment on that loan. This notion is not necessarily true. While most lenders would prefer a down payment, as it lessens the amount of the loan, they will still approve you without a down payment. The lender’s decision to approve a customer on a no down payment loan falls largely on that customer’s credit situation. If the customer has a horrible credit history and many missed payments, that lender will likely require a down payment. This isn’t to say that having bad credit will stop you from having to put a down payment down, but it will likely result in you having to pay a higher interest rate if you do skip on the down payment. 

Free Up Money for Other Expenses

By skipping the down payment, you’ll be able to free up money to do other things with it, such as paying down credit card debt or making vital purchases. The first question you need to ask yourself is, "should I be putting this money somewhere else right now?" If you can find constructive and useful ways of allocating the money elsewhere, this is something you should definitely consider. But you must remind yourself that this will only increase your monthly payments, so it’s important to be certain that you’ll be able to afford those payments consistently as they come. If you decide to skip your down payment and you don’t reallocate that money responsibly, you’re going to put your credit situation in even more harm. If your credit score continues to decrease, you can be sure to not be approved for a no-down-payment car loan again.

Get Yourself Behind the Wheel Far Quicker

Another reason to skip the down payment on a used car is that it might help get you behind the wheel of a used car much faster. If a car dealer is offering you zero money down, then you really should consider that offer especially if your other option is waiting to save up enough money to buy a car that you need.

Some Major Considerations

However, there are some negatives to zero down car loans as well. You will want to take the following into account:

  1. Depreciation: If you are buying a new car, it will depreciate even more rapidly. This means that if don't make a down payment, you could owe more than the car is actually worth!
  2. Selling your car: If you decide to get rid of your car before you completely pay off the loan, you might have to pay out of pocket to sell or trade-in the car.
  3. Monthly payments: It goes without saying that if you skip making a down payment, your monthly payments will be higher as a result.
  4. Interest rate: If you choose to skip on a down payment, you’re now asking the lender for a bigger loan, inherently making it a higher risk for the lender. The higher the risk of the lender, the higher your interest rate will be.

If you have the opportunity to pay zero percent down, make sure that you’ve weighed the pros and cons before making the decision. Undoubtedly, both choices have their benefits, so it is a matter of deciding what works best with your lifestyle and finances.

If you’re considering buying a car, be sure to check out our rates page to see what our lenders are offering. Once you have an idea of your interest rates, check out our car loan calculator and estimate what your monthly payments will be! Get pre-approved for a vehicle today by completing our application!

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