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Zero down payment car loan: Smart move or financial sinkhole?
Discover the meaning, benefits, and risks of a zero down payment car loan to ensure you make the right financial decision before buying a car.
Key takeaways
- Zero down payment car loans offer convenience but have higher EMIs and an increased interest cost.
- Ideal when you want to buy a car immediately and don’t want to dip into your savings or investments.
- Involves a stricter credit approval process. Read the fine print carefully to ensure it covers all the charges.
Imagine this, you walk into a car showroom, and a car grabs your attention. You can picture yourself driving home in it, and it makes you happy. And then, reality hits and you realise you haven’t saved up enough to cover the down payment. Well, instead of sighing in disappointment, what if you could buy the car you want without any down payment? Yes, you read it right, and this is possible through zero down payment car loans!
In this article, you will learn what a zero down payment car loan means and its pros and cons, so you can evaluate whether it is a good fit for you or not.
Understanding a zero down payment Car Loan
As the name suggests, a zero down payment car loan is one where you don’t have to pay anything upfront to buy a car. Usually, around 10-20% of the car’s price is to be paid as a down payment, and you can finance the rest through a loan. With a zero down payment car loan, the entire sum will be financed by your lender or bank.
This usually includes the road tax, registration charges, ex-showroom price, and insurance. However, carefully read through the fine print to ensure all the costs are covered by the zero down payment loan.
Benefits of zero down payment Car Loans
- Protect your savings: You’d have to save to make the down payment before buying a car. If you don’t want to dip into your savings or wait to save the required sum, this comes in handy.
- Instant car upgrade: If you want the convenience of an instant car upgrade without breaking your savings, then consider this option.
- No delays: If you are in urgent need of a car or don’t want to delay the purchase, this option comes in handy.
Some risks to consider
- Higher EMIs: Since the entire cost of the car will be covered by a loan, the EMIs to be paid might be higher. If you opt for a conventional car loan and make a down payment, the total sum borrowed will be lower. In turn, this reduces the EMIs. The EMIs will be higher if the loan amount is higher. In a way, this means your car becomes more expensive in the long run when you skip the down payment.
- Stricter approval process: In this, lenders take on a bigger risk, which comes with increased
scrutiny. Some essential factors your bank or lender will look into before approving a zero down
payment car loan are:
- Income stability
- Employment stability
- Credit score
- Repayment capacity
- Age
Is a zero down payment Car Loan the right choice for you?
Now that you know the pros and cons, let’s see how the math works out in a zero down payment car loan when compared to a traditional car loan with down payment.
| Details | With Down Payment | Zero Down Payment |
|---|---|---|
Car Cost | ₹10 lakhs | ₹10 lakhs |
Down Payment Amount | ₹2 lakhs | ₹0 |
Loan Amount | ₹8 lakhs | ₹10 lakhs |
EMI (8% for 5 years) | ₹16,200 | ₹20,250 |
Total Paid Over 5 Years | ₹9.72 lakhs | ₹12.15 lakhs |
Total Interest Paid | ₹1.72 lakhs | ₹2.15 lakhs |
Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.
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