

If you have bad credit, getting an auto loan is going to cost you more money than it would if you had average, or good, credit. Lenders will charge you more in interest rates because you’re a bigger risk and will attach higher fees because making auto loans for bad credit happen requires more labor. Depending on how bad your credit is, you may be required to make a minimum down payment. So, how can it be possible for you to get auto loans for bad credit with no money down?

One of things people with bad credit are often asked by a lender to secure an auto loan agreement is to pony up a minimum down payment. Though there’s no legal requirement to do so, it’s customary throughout the industry in order to confirm that you’re invested in the deal. A down payment can be looked at as a, sort of, security deposit on the vehicle purchase, though it’s not money you’ll get back if the lender has repossess the vehicle. What a down payment does do is reduce the balance on which you’ll be paying interest and, in many cases, will give cause for the lender to reduce your interest rates.

This creates a large upfront cost on your part as you’ll be a paying a percentage of the price of the car, license and registration, sales tax, insurance, interest, and loan fees. This is known as the total cost of the car and will add several hundred dollars to the amount you will be financing through the lender. If the total cost of the car is $25,000 and make a 20% down payment, you’ll be paying interest on the remaining $20,000 balance. Using an auto loan calculator will allow you to get a close idea to what your actual costs of the loan are:

If your total costs will be $25,000 and you’re on the hook for 8.25% interest, a four year auto loan will come to $25,462.60 with $3,837.60 being paid in total interest, provided you put $5000 down (this also factors in a 6.5% sales tax rate). Your monthly payments on such a loan would come to $530.47.

This seems like an intimidating responsibility, but if properly budgeted for, theses costs can be met without worrying over late payment penalties, or repossessions. With the down payment, however, your lender may lower the interest rates simply on the basis that you’re willing to go all-in on this investment. That same loan with a more favorable interest rate say, 6.5% interest, gets the following results:

Monthly payments of $512.84 to a total amount of $24,616.12, with $2991.12 of that being interest – a savings of nearly $1000. There’s no a guarantee that a lender will drop its interest rates, but a healthy down payment greatly improves the odds.

Auto loans for bad credit with no money down create a tempting opportunity to save on the money you’d have to pay upfront. But, there are no real savings in a no-money-down auto loan. When a lender or car dealership offers these loans to people with bad credit, they’re made only at very high interest rates. What you would’ve made as a down payment is not forgotten. This amount is rolled back into the loan forcing you to pay interest on the total cost of the car. That loan for $25,000 would have the following results if no down payment were made:

With an 8.25% interest rate, your monthly payments over four years would be $653.12, and your total amount paid would be $31,349.91 with $4724.91 going toward interest.

The costs jump tremendously in the no-money-down situation. With auto loans for bad credit, the no money down option puts a lender at increased risks for the borrower defaulting. The result is that you won’t see any discounts on interest rates and, in fact, will have to pay higher interest rates than that of standard bad credit auto loans. There is a place for auto loans with no money down. If you’re in a situation where you a cash-strapped for the down payment on a car, yet have the income to support the costs of the loan, you might take this option. Do so knowing how much auto loans for bad credit with no money down really cost and you won’t be in for any nasty financial surprises.

Though an auto loan gimmick used by many car dealerships, many national lenders are seeing the advantages of marketing no-money-down auto loans to people with bad credit. Local lenders have also jumped on the bandwagon as bad credit borrowers have increased in number. Liberty Auto Loan can help locate an auto loan source for bad credit locally, or anywhere in the country through a network of affiliated car dealerships and lenders. When shopping is made easier, the consumer is more likely to spend money wisely. That’s the goal of – easy choices, wise decisions.