Acquiring a car without a downpayment
March 9, 2016 5:17 AM Subscribe
My 22-year-old Honda is acting up, and I fear that it may not be worth fixing. I don't have enough cash for a down payment on something else. What are my options?
The articles I'm finding on buying a car without a down payment are mostly ads for people with bad credit. I have more debt than I should, but my Fico score is 737, and I haven't missed a payment of any kind in more than twenty years. Because of the debt (which I'm working on), I don't have a whole lot of cash flow, so I'd want to keep a monthly payment under $300. This seems doable with a lease and maybe with a used car, at least according to the ads I'm finding in my area, but I've always been told that leases are the worst thing in the world. Are they? And my credit union will finance a new car at 100%, but then we're getting into crazy monthly payment territory. My two biggest debts (a student loan and a consolidation loan), totaling almost $800 a month, will be completely paid off in less than three years, so it seems that having a lease for that period of time might not be a bad idea.
I don't want to go the craigslist route because, if my car is truly dead, getting all over town to look at cars when I don't really know what to look for and would have to have a mechanic check them out just doesn't seem doable (and I don't want to have the experience of having someone I've made an appointment with sell the car before I get there and not have the courtesy to phone me - I've gone through that before). Plus, in my small city, they haven't yet caught the person who is advertising expensive items, then pulling a gun on people who show up with the cash.
Please don't tell me to go without a car for x months to save up a down payment. I can't really get by on public transportation for that long. What I want to know is what to do when I don't have a down payment, don't have enough cash to buy another beater outright, and can't afford huge monthly payments. I can scrape up about $1000, maybe $1500, but that seems like it could easily go toward things like taxes and fees. I'm definitely not a person who needs a new car to feel good about myself, but I will admit I'm getting tired of always worrying about the next breakdown.
So hive mind, can you help me out here?
The articles I'm finding on buying a car without a down payment are mostly ads for people with bad credit. I have more debt than I should, but my Fico score is 737, and I haven't missed a payment of any kind in more than twenty years. Because of the debt (which I'm working on), I don't have a whole lot of cash flow, so I'd want to keep a monthly payment under $300. This seems doable with a lease and maybe with a used car, at least according to the ads I'm finding in my area, but I've always been told that leases are the worst thing in the world. Are they? And my credit union will finance a new car at 100%, but then we're getting into crazy monthly payment territory. My two biggest debts (a student loan and a consolidation loan), totaling almost $800 a month, will be completely paid off in less than three years, so it seems that having a lease for that period of time might not be a bad idea.
I don't want to go the craigslist route because, if my car is truly dead, getting all over town to look at cars when I don't really know what to look for and would have to have a mechanic check them out just doesn't seem doable (and I don't want to have the experience of having someone I've made an appointment with sell the car before I get there and not have the courtesy to phone me - I've gone through that before). Plus, in my small city, they haven't yet caught the person who is advertising expensive items, then pulling a gun on people who show up with the cash.
Please don't tell me to go without a car for x months to save up a down payment. I can't really get by on public transportation for that long. What I want to know is what to do when I don't have a down payment, don't have enough cash to buy another beater outright, and can't afford huge monthly payments. I can scrape up about $1000, maybe $1500, but that seems like it could easily go toward things like taxes and fees. I'm definitely not a person who needs a new car to feel good about myself, but I will admit I'm getting tired of always worrying about the next breakdown.
So hive mind, can you help me out here?
Best answer: I did a "down payment" that was actually just me giving them my old car plus like $800. The dealer and the bank were like "whatever." That was for a "used" car that had just come off lease, so it was in excellent shape. I think the down payment was probably something like 9% of the cost of the car, maybe a bit less.
I didn't have my heart set on a specific car, though, which made it easier. I was willing to buy any Chevy Cavalier or Cobalt within a range of model years and total mileage. So my car is orange and has a spoiler, but it was a very low-stress situation.
posted by SMPA at 5:38 AM on March 9, 2016
I didn't have my heart set on a specific car, though, which made it easier. I was willing to buy any Chevy Cavalier or Cobalt within a range of model years and total mileage. So my car is orange and has a spoiler, but it was a very low-stress situation.
posted by SMPA at 5:38 AM on March 9, 2016
Oh, and my payment was like $116 every two weeks (through my credit union,) which allowed me to pay it off a few months faster.
posted by SMPA at 5:40 AM on March 9, 2016
posted by SMPA at 5:40 AM on March 9, 2016
Best answer: Interest rates are so low right now that it doesn't really pay to put a down-payment on a car.
These days a lease is just a loan with a balloon payment. As long as your car holds value (like Hondas do) just pick the option that works for you. In our case, we traded our leased cars and the payments were so close, we chose to purchase instead.
You can trade your nearly dead car. They might give you a couple hundred bucks.
Go to a dealer and see what they can do for you. You're not obligated to do the deal unless you want to.
posted by Ruthless Bunny at 5:49 AM on March 9, 2016 [1 favorite]
These days a lease is just a loan with a balloon payment. As long as your car holds value (like Hondas do) just pick the option that works for you. In our case, we traded our leased cars and the payments were so close, we chose to purchase instead.
You can trade your nearly dead car. They might give you a couple hundred bucks.
Go to a dealer and see what they can do for you. You're not obligated to do the deal unless you want to.
posted by Ruthless Bunny at 5:49 AM on March 9, 2016 [1 favorite]
Another thought. I like new cars. A lot. I had beaters for decades and I don't miss that catch in my chest every morning when I first start the car and hoping that today won't be the day it makes a funny noise.
posted by Ruthless Bunny at 5:50 AM on March 9, 2016 [4 favorites]
posted by Ruthless Bunny at 5:50 AM on March 9, 2016 [4 favorites]
Best answer: I've never leased a car but I know plenty of people who have and they're people who generally make good financial decisions. I think it's like renting an apartment - some people see it as throwing money down the drain but if you're only in a location temporarily or you're in a crazy housing market, buying doesn't make sense.
That said, buying a certified pre-owned car might be a way to thread the needle.
posted by kat518 at 5:57 AM on March 9, 2016
That said, buying a certified pre-owned car might be a way to thread the needle.
posted by kat518 at 5:57 AM on March 9, 2016
Best answer: I bought my last new (slightly used) car with no down payment.
I applied through Capital One's auto loan program. They call it a "blank check" loan, because they will approve you up to a certain amount, and you can then write the check to the dealership for anything up to that amount. The approval will also have a "loan-to-value" (LTV) percentage allowed on the purchase. This is the percentage of the book value of the car they will finance. So, 90% LTV means that if you can buy a car with a book value of $10,000, you can write the check for up to $9,000. If that's all the car costs, then there's no down payment. The LTV changes depending on whether the car is new or used, and the LTV can sometimes be over 100%. You can also choose the length of the loan terms.
In my case, I had a 90% LTV approval for a used car, and I found a 2-year-old Kia Forte Koup. The car was marked at about book value, but I just told the salesman that I was using CapOne finance, and I would pay up to the amount they approved (about $14,000). They took the deal so fast it made me think I could have got it for even less. It's genuinely the easiest car purchase and financing I have ever had.
The good part about CapOne auto financing, is that even if you are approved and receive the blank check, you are under no obligation to use it. My credit score was much lower than yours and I got a better rate than my local bank was offering.
Caveats: You have to purchase at one of their approved dealerships, so no buying from a private party. Also, some dealers may try to talk you into their financing, and also try to tack on extra charges, but some of them try that with everyone. You can just say no.
FAQ for CapOne Auto.
(No, I don't work for them!)
posted by The Deej at 6:21 AM on March 9, 2016 [4 favorites]
I applied through Capital One's auto loan program. They call it a "blank check" loan, because they will approve you up to a certain amount, and you can then write the check to the dealership for anything up to that amount. The approval will also have a "loan-to-value" (LTV) percentage allowed on the purchase. This is the percentage of the book value of the car they will finance. So, 90% LTV means that if you can buy a car with a book value of $10,000, you can write the check for up to $9,000. If that's all the car costs, then there's no down payment. The LTV changes depending on whether the car is new or used, and the LTV can sometimes be over 100%. You can also choose the length of the loan terms.
In my case, I had a 90% LTV approval for a used car, and I found a 2-year-old Kia Forte Koup. The car was marked at about book value, but I just told the salesman that I was using CapOne finance, and I would pay up to the amount they approved (about $14,000). They took the deal so fast it made me think I could have got it for even less. It's genuinely the easiest car purchase and financing I have ever had.
The good part about CapOne auto financing, is that even if you are approved and receive the blank check, you are under no obligation to use it. My credit score was much lower than yours and I got a better rate than my local bank was offering.
Caveats: You have to purchase at one of their approved dealerships, so no buying from a private party. Also, some dealers may try to talk you into their financing, and also try to tack on extra charges, but some of them try that with everyone. You can just say no.
FAQ for CapOne Auto.
(No, I don't work for them!)
posted by The Deej at 6:21 AM on March 9, 2016 [4 favorites]
Best answer: Your $300/month budget would mean a four year loan of around $14,000 or a five year loan of around $17,000, both of which get you into budget new car territory, or slightly used nicer cars, quite easily. I've never leased a car but it can make sense and there have been many previous questions here exploring the details of leasing.
posted by Dip Flash at 6:23 AM on March 9, 2016
posted by Dip Flash at 6:23 AM on March 9, 2016
Best answer: Leases are perfectly fine as long as you do exactly what you're talking about - put nothing down. Do that, make sure the lease term isn't long enough that you'll be responsible for new tires, brakes, etc, and that the mileage limit matches your driving habits, and you're just paying the monthly. When the lease is up, you walk away. Meanwhile, maybe you've saved up enough for a downpayment to purchase your next car.
posted by schoolgirl report at 8:15 AM on March 9, 2016 [3 favorites]
posted by schoolgirl report at 8:15 AM on March 9, 2016 [3 favorites]
Auto loans, especially for used cars, are a very bad idea. Do you need a car to get around every day? Is there a car co-op in your area you could join instead? Can you move someplace more central where you don't need a car?
If you have $300 a month it might be wiser to invest in paying more rent so you don't need a car. Factor in how much you would be saving in gas that's at least $400 a month you have to play with. Plus another $1000 a year for insurance. And, say, $500 a year for repairs and oil changes.
So that's about $6000 a year you could add to your housing budget, or use for a car co-op.
posted by My Dad at 8:47 AM on March 9, 2016
If you have $300 a month it might be wiser to invest in paying more rent so you don't need a car. Factor in how much you would be saving in gas that's at least $400 a month you have to play with. Plus another $1000 a year for insurance. And, say, $500 a year for repairs and oil changes.
So that's about $6000 a year you could add to your housing budget, or use for a car co-op.
posted by My Dad at 8:47 AM on March 9, 2016
Best answer: Your $300/month budget would mean a four year loan of around $14,000 or a five year loan of around $17,000, both of which get you into budget new car territory, or slightly used nicer cars, quite easily.
That was my initial thought, and I'm really not seeing the big problem. The only possible way you can be looking at crazy monthly payments is if you're looking at a car that is too much for you to afford. You have a 22 year old car and that budget ($14-17K) puts you easily into a car that is newer than 8-10 years old (for a fancy one) and maybe less than 5 years old (for a non-fancy one). Cars of that age are an order of magnitude more reliable than a 22 year old car (even a Honda).
I've bought many cars within that range and never needed a down payment. Your pool for cars of those age would be a reputable used dealer, or a new dealer who has trade-ins they want to move (all car dealers have these on their lot). Carmax would be perfect for this, but I suggest you get your loan through your credit union because it cuts off so much 'negotiation' and upselling with the dealer.
posted by Brockles at 9:05 AM on March 9, 2016 [1 favorite]
That was my initial thought, and I'm really not seeing the big problem. The only possible way you can be looking at crazy monthly payments is if you're looking at a car that is too much for you to afford. You have a 22 year old car and that budget ($14-17K) puts you easily into a car that is newer than 8-10 years old (for a fancy one) and maybe less than 5 years old (for a non-fancy one). Cars of that age are an order of magnitude more reliable than a 22 year old car (even a Honda).
I've bought many cars within that range and never needed a down payment. Your pool for cars of those age would be a reputable used dealer, or a new dealer who has trade-ins they want to move (all car dealers have these on their lot). Carmax would be perfect for this, but I suggest you get your loan through your credit union because it cuts off so much 'negotiation' and upselling with the dealer.
posted by Brockles at 9:05 AM on March 9, 2016 [1 favorite]
Best answer: Yeah, we bought a brand new Kia Soul last year with nothing down (well, we did put something down, but we were also upside-down on our trade-in so it was a wash) and our payment is $249/mo. If you really do have $300/mo in your budget for a car payment you could walk into any dealership in town and find something to fit your budget.
posted by rabbitrabbit at 9:47 AM on March 9, 2016
posted by rabbitrabbit at 9:47 AM on March 9, 2016
Best answer: I'd also like to recommend CarMax, a friend with ok credit bought a car from there with no money down and I was shocked that that was a thing regular people could do. Her monthly payments are higher than I'd be comfortable with, but it appears to be something that CarMax often offers.
posted by sweetmarie at 10:14 AM on March 9, 2016
posted by sweetmarie at 10:14 AM on March 9, 2016
Acting up how? If the body is straight and there's no rust in it, which is pretty typical for a small Japanese car, you could throw a couple of thou at it and still come out way ahead of buying a replacement.
posted by flabdablet at 10:58 AM on March 9, 2016 [1 favorite]
posted by flabdablet at 10:58 AM on March 9, 2016 [1 favorite]
It's been quite a while, but in my recollection, the solution to this problem is that the car dealer inflates the value of your trade-in vehicle to be the amount of the down payment, and then adds any inflated amount to the price of your car. So just to use round numbers, let's say your car is worth $500, and you want to buy a $20,000 car with a down payment of $2,000. The dealer assigns your trade in a value of $2,000, and then the cost of your purchased car increases to $21,500.
Not a great solution, but a solution.
posted by janey47 at 11:27 AM on March 9, 2016
Not a great solution, but a solution.
posted by janey47 at 11:27 AM on March 9, 2016
Don't know if it will work for you, but Nissan Leaf leases can be $240/mo with no money down.
posted by flimflam at 1:30 PM on March 9, 2016 [1 favorite]
posted by flimflam at 1:30 PM on March 9, 2016 [1 favorite]
Best answer: And my credit union will finance a new car at 100%, but then we're getting into crazy monthly payment territory.
I find this odd -- my credit score is much lower than yours and my credit union gave me a 100% financed car loan to buy a used car up to 10 years old, at a reasonable interest rate and no crazy monthly payments. You may want to check with another bank to compare your options.
The thing with the lease is you're making smaller payments on the car, with the understanding that at the end of the lease you either end up with no car, or you pay the remaining balance of the car's value. Either way, you're getting a worse deal than taking a traditional loan with a traditional bank to purchase a car outright, which will theoretically last you longer than the loan's duration.
posted by AzraelBrown at 2:04 PM on March 9, 2016
I find this odd -- my credit score is much lower than yours and my credit union gave me a 100% financed car loan to buy a used car up to 10 years old, at a reasonable interest rate and no crazy monthly payments. You may want to check with another bank to compare your options.
The thing with the lease is you're making smaller payments on the car, with the understanding that at the end of the lease you either end up with no car, or you pay the remaining balance of the car's value. Either way, you're getting a worse deal than taking a traditional loan with a traditional bank to purchase a car outright, which will theoretically last you longer than the loan's duration.
posted by AzraelBrown at 2:04 PM on March 9, 2016
Response by poster: Thanks for the great answers. Here's a little additional information:
I didn't go into the reasons that doing without a car will not work for me, as that would do nothing but make the question longer. I cannot move for very weird and complicated reasons.
Since I'm just looking at this theoretically and haven't actually applied for a loan, I was guessing about monthly payments being crazy based on one local Honda dealer I looked at online. So perhaps I'm completely wrong about that. That's why I need (and appreciate) help.
My car turned out to just need a new hose, but the mechanic is recommending another $2400 worth of work that he says can wait. He says this includes fixing a lot of leaks (he told me that I'm OK for now if I check my oil frequently). I live in Michigan, where a 22-year-old car is going to have a good amount of rust because of all of the salt on the roads. I rent cars to travel out of town a few times a year because I don't want to break down on the highway. This is another additional expense of driving a car that's so old.
posted by FencingGal at 2:30 PM on March 9, 2016
I didn't go into the reasons that doing without a car will not work for me, as that would do nothing but make the question longer. I cannot move for very weird and complicated reasons.
Since I'm just looking at this theoretically and haven't actually applied for a loan, I was guessing about monthly payments being crazy based on one local Honda dealer I looked at online. So perhaps I'm completely wrong about that. That's why I need (and appreciate) help.
My car turned out to just need a new hose, but the mechanic is recommending another $2400 worth of work that he says can wait. He says this includes fixing a lot of leaks (he told me that I'm OK for now if I check my oil frequently). I live in Michigan, where a 22-year-old car is going to have a good amount of rust because of all of the salt on the roads. I rent cars to travel out of town a few times a year because I don't want to break down on the highway. This is another additional expense of driving a car that's so old.
posted by FencingGal at 2:30 PM on March 9, 2016
This thread is closed to new comments.
posted by hwyengr at 5:30 AM on March 9, 2016 [8 favorites]