A rumor that has been spread since the 1960’s is that whatever a car dealer gets for a down payment is nothing more than profit. This rumor is in part, true.
The following example applies whether you’re buying a car, truck or motorcycle with bad credit.
Let’s say that you want to purchase a used car that has a selling price of $15000.00 and the dealer is telling you that because of your bad credit history, you have to put down a 10% down payment of $1500.00. In cases like this, it is very likely that the loan company approving you will only “advance” $13,500.00 on the vehicle in question and this is generally based on loan value. Typically, the dealer will have paid somewhere around loan value for the car and if they sell it at this price, then they aren’t making any profit. So in this common example, requesting that you make a cash down payment of $1500.00 is in fact, $1500.00 of dealer profit and nothing more.
Dealers do have to make money and $1500.00 is a reasonable profit. It’s disheartening however, to fork over a couple weeks worth of income just to make that happen, though.
How to Get A Car with No Money Down
If you have bad credit and need auto financing, and you don’t want to put any money down, there is a solution. Now, hear me out on this, because this information can really benefit you and this information comes from 20 years of experience working in car dealership finance departments…
Buying a car from a private owner. This reduces the amount financed by around 7% or whatever your local tax rates are. This reduces the amount needed to buy the car and less money that has to be borrowed. There are also no dealer “doc” fee or dealer “prep” fee, which also reduces the amount needed to be loaned by $99 to $599 typically charged by car dealerships. Reducing the amount needed is good!
Negotiating with a private seller on the sale price is MUCH easier than negotiating with people that do it for a living (car dealers). If the seller doesn’t have a large amount owed to the bank and is frustrated with taking time to show the car, you may be very surprised to find some really great prices on cars for sale by owner. This can be in your local newspaper, bargain paper or online classified.
“Do-It-Yourself” auto financing. This is the most important part. Bad credit doesn’t mean that you can’t get a car loan from a loan company outside of a car dealership. If you deal with a loan company directly, you’re only dealing with them on the finance side of the purchase, not the price of the car. This enables you to qualify (get approved) for a specific dollar amount that you can base your car shopping on. There are online resources to do this from the comfort and privacy of your home.
Buying a car from a private owner reduces the amount you need to borrow significantly and if you shop a little, you’ll have no need for a down payment, whatsoever. Also, this involves arranging your own financing which is very doable if you have bad credit and know where to go.