Do I absolutely need a down payment for a used car?
Posted by helloimyahyahhh@reddit | askcarguys | View on Reddit | 88 comments
Kind of going back & forth on this.. my credit needs some work so I’ll be having someone co-sign with me with financing a used car. I have a budget of $30-5K max & don’t want to put anything down since I know the majority of the time it’s the seller’s commission bonus.. This particular dealership works with any credit so my chances on leaving with a car are high, just don’t want to be screwed over with a high APR. Advice & tips would be appreciated!!
EffectiveExact5293@reddit
If you cosigner has good enough credit you'll probably be good to go, I've had to do that in the past and was able to get no down payment twice
helloimyahyahhh@reddit (OP)
Yeah thank you! I know I wasn’t working, was waiting for someone to say hey I’ve done this exact thing.
EffectiveExact5293@reddit
One vehicle came out to $36k, I had a trade in so I got 4.5 knocked off, cosigner was around 750 and I was good to go, other one was right under $20k, no trade and and same thing, I needed the cosigner for the interest rate and it helped out more than I could have imagined
helloimyahyahhh@reddit (OP)
Question- was your APR high? I don’t want it to be like 10%
EffectiveExact5293@reddit
It was 5 on one and 5.99 on another not outstanding , but more than cut in half what I would have had
helloimyahyahhh@reddit (OP)
Yeah maybe I’ll hit for 20k car instead just to build my credit. My co-signer has the same credit so I feel like it’ll be a win/win. Thanks man, damn so many opinions with no actual experience to my actual question lol
Aggressive_Lex350@reddit
The higher the apr, the higher the recommended downpayment. Also if you have bad credit. Why are you buying a 30-50k car?
ThatOneVQ@reddit
Hop off his dick, gotta build credit somehow if they approve him and don’t tape him on interest I’d say go for it
helloimyahyahhh@reddit (OP)
Lol thanks I have a good job & can afford it, just don’t know how tf this shi works. I’m learning damn some people are aholes I literally just asked for advice & getting judged left and right 😂
Aggressive_Lex350@reddit
You asked for advise. The advise is downpayment would be beneficial and look for cheaper car. If you take that as someone judging you, then I don't know what to say but goodluck my friend.
ThatOneVQ@reddit
Maybe bro just wants a nice car and is willing to live in a cheap house I genuinely see no issue with that whatsoever people shit on my all the time but I’d rather have a double wide trailer with a shop and a few nice cars rather than a million dollar house with an old beat up corrola it’s all about personal preference it’s bros world we’re just living in it
Aggressive_Lex350@reddit
Good for you buddy. But just because you do it, doesn't mean everyone should do it. I was just giving a sound financial advise. Fk I care if OP want to go down the rabbit hole on a 50k car. With no down payment, in just couple months he will be upside right away.
Then you see a lot of ppl, ask how to get rid of 20k negative equity. I don't wonder why anymore.
ThatOneVQ@reddit
Yeah he might be upside down for about a year or so maybe more maybe less depending on the loan terms but if he keeps the car nice and it has good resale value as long as he makes his payments he’ll be back right side up after a little bit, sometimes you have to take a little financial hit to have fun dude life ain’t that serious you and I could both die tomorrow
Aggressive_Lex350@reddit
With a bad credit, he will have a high interest. He won't be just upside down for just a year. He will probably be upside down for half the term of that loan, maybe more.
ThatOneVQ@reddit
All depends on the interest, the way I see it is your upside down on almost any new car you buy for a little bit unless your just making a crazy down payment
Bubbas4life@reddit
I am amazed with how little common sense people have these days
Aggressive_Lex350@reddit
Great mentality. I mean if someone absolutely needs to have a cosigner, they can't afford it and should look at cheaper cars. Should be great options to find at 10k-20k range. Not 30k-50k range.
ThatOneVQ@reddit
Bro co-signer has nothing to do with cost of the car that is fucking absurd bro needs a co signer because he has no credit I had to have a co-signer for a 4k dollar car
Aggressive_Lex350@reddit
He must have a really nice cosigner. I would not cosign with somebody with a bad credit for a 50k loan. Doesn't matter if family or best friend. I have seen way too much posts here where their credit got dragged down by someone with bad credit that they cosigned with.
Mind boggled by how much you are triggered by some regular sound financial advise.
ThatOneVQ@reddit
I’m not really triggered I’m just saying there’s other options. If he has someone that can co sign that is a very good friend or relative and he makes enough money and has enough job security and understands the fact that most of they’re money will go towards the car payment and they can still live comfortably I truly don’t see an issue with it
Aggressive_Lex350@reddit
Yeah. Other option is to buy a cheaper car and not burden a friend or relative with a 30-50k loan. When he is done repairing his credit. Then do fk all. Its when you're burdening somebody else with loan like that just so you can have a newer and fancier car.
ThatOneVQ@reddit
Ever thought about the fact that maybe the dude doesn’t have credit to begin with maybe he’s been driving cheap cars and paying cash his entire life you can’t always assume just because someone has to get a co signer because of bad credit it is extremely hard to get approved for a car with zero credit at all like I had
helloimyahyahhh@reddit (OP)
My credit isn’t horrible but it needs work hence going to a used car dealer to build my credit rather than going the alternate route.
Last_Ear_1639@reddit
Buy a car for cash, and take out a small limit CC and use it for gas and groceries and pay it off every month, while carrying a small balance.
That's how you fix your credit, not with a $0 down payment cosigned used vehicle loan.
And, for the record, a down payment doesn't effect the salesperson commission, and, what the salesperson makes is none of your business, that's between the salesperson and their ownership.
Aggressive_Lex350@reddit
Exactly.
Aggressive_Lex350@reddit
I just think the amount of loan is too high for someone trying to repair their credit. To each their own I guess.
CosbysLongCon24@reddit
Probably shouldn’t buy a $30k+ car with bad credit. Prob shouldn’t risk someone else’s credit either. Take the advice of others and get something used, with low miles, at half the cost or less.
Ok_Growth_5587@reddit
No
Mike__O@reddit
This is probably going to be an unpopular opinion, but if you can't afford enough of a down payment to never be upside down on a car loan, you can't afford the car.
kylman@reddit
Woah - you’re not going to put any down payment because you don’t want the sales person to get a commission? Even though that has nothing to do with you?
You’re down payment lessens the amount of gap coverage you’ll need, which will increase your monthly insurance too. You’ll also spend 10x as much over the life of the loan.
If you don’t have a down payment for a 30k car, I’d argue to say you don’t need a 30k car and will be upside down the entire time on the loan.
Buy a used car with 80k miles for half that. Minimize your risk. Put a down payment down. Has nothing to do with commission nor does that impact you.
helloimyahyahhh@reddit (OP)
I never said I didn’t have money to out down. I asked if I should, I’ve been screwed over in the past. Thanks for your advice, I’ll look into an older car.
kylman@reddit
How do you get “screwed” out of a down payment? Down payments literally go against the financed amount.
TheChinchilla914@reddit
Think they just got played at a stealership in the past
kylman@reddit
You mean, they made a terrible purchase and the car died on them before the loan ended? It’s called due diligence and personal accountability.
supern8ural@reddit
Came here to specifically mention gap insurance. Not as bad as with a new car, but you still may be "upside down" early in the loan.
Last_Ear_1639@reddit
New car makes even more sense than a used car to have GAP, the depreciation in a new car virtually guarantees you'll be upside down for 3yr.
Cheap-Chapter-5920@reddit
I'm not sure where you got the idea that the downpayment is a bonus for them, unless they are self-financing they are getting the full amount after the loan anyway, and they likely get extra commission on the loan referral too.
I've never had any encouragement from the dealer to put any downpayments, if you have good credit they love to give out zero-down loans.
helloimyahyahhh@reddit (OP)
A previous finance company told me the down payment I out down for my previous car did not go towards my loan so since then I’ve questioned doing so. This car dealer has in house financing so makes sense.
LiveMarionberry3694@reddit
What would a down payment even go to…? That’s the whole point of the down payment
Square-Wild@reddit
This sounds like a misunderstanding.
When you buy the car, you should get a gigantic contract with all of the terms laid out. I think they're generally carbon copies with yellow at the front.
It should break things down like:
Vehicle Selling Price: $35,000
Sales Tax: $3,200
Add-Ons: $3,000
Total Selling Price: $41,200
Capital Cost Reduction: -$3,000 (this would be your down payment)
Amount Financed: $38,200
Then the finance terms, and some summary line like Total Amount Paid: $x, Total Cost of Financing: $17,400
CoupScooper@reddit
This is beyond incorrect at best and illegal activity going on at worst lol.
helloimyahyahhh@reddit (OP)
Yeah looking back I was like wtf I get how it looks now & they were super sketchy. They’re going out of business for a reason.
robble808@reddit
Aint nobody smart told him that.
robble808@reddit
I highly doubt a bank told you that blatantly false line.
yungingr@reddit
This is only valid if you're financing with Uncle Louie's Car Loans and Sports Book.
jrileyy229@reddit
No, it doesn't make sense. Yikes... You really need to watch a YouTube video on how car loans work. If you buy a 50k dollar car and agree to put 5k down.... Then it goes towards the purchase of the car, not the loan... The loan will be for 45k. If you roll taxes and fees into the loan as well, then the loan could end up being 50k and appear to you that your 5k down just disappeared.
To answer your question, if you buy a car like that with no money down, then you're going to pay for it elsewhere.... Which will be an insane APR
LiveMarionberry3694@reddit
Bad credit ✅
No money down ✅
50k budget ✅
A place that works with any credit ✅
Yeah good luck with that low interest rate lmao
helloimyahyahhh@reddit (OP)
Welcome to the ghetto 💀
ajb15101@reddit
Donate your body to science, local physicists would love to figure out how to replicate a surface as smooth as your brain. You have a toddlers idea of how money works.
Leestons@reddit
Play nice.
boxerbroscars@reddit
advice: dont finance 30k for a used car. Thats a lot of debt for something that doesnt come with the new car warranty
jrileyy229@reddit
Yeah, for someone who knows absolutely nothing about cars or financing or money in general it seems .... A new 27k civic is probably the answer.
boxerbroscars@reddit
or a 10k car in cash and save money monthly to set aside for repairs
jrileyy229@reddit
I know that's the general easy answer... But 10k doesn't get you a like-new 50k mile car the way it used to. Now you're getting 100k+ mile cars that are right in the beginning of ongoing component repairs like wheel bearings, ball joints, exhaust, etc.
Honestly, for someone that knows absolutely nothing about anything... I'd recommend just go buy an entry level new car.
10k used car you will end up with 15-20k total into it over 5 years with at least a few significant repairs...and it's now worth 5k.
25k new car you end up with 25k into it and after 5 years it's worth 15k... And you were driving a trouble free new car.
experimentalengine@reddit
I’m surprised someone is willing to go $30-50k in debt on your behalf - because that’s what co-signing is. The bank requires a co-signer because they don’t trust that you won’t default, so to write the loan (or in this case, to write the loan at a rate you like), they require someone else to sign with you. If you stop paying it, for any reason, they owe it. If you pay it late, it dings their credit.
That doesn’t answer your original question, but it seemed useful to say because you mentioned that you know very little about personal finance - specifically, I believe you said you “don’t know how tf this shi works.”
If it’s me, I’m putting 100% down, and if I don’t have 100% it’s because I’m looking at a car outside my budget, but I realize this isn’t how everyone does it. I’ve driven lots of very cheap cars and just learned how to fix them as needed, and now I get to drive nicer cars because of it. I’ve also borrowed to buy cars, and it eats at me the whole time I have the loan.
jstar77@reddit
You don't have a $30k budget if you have bad credit and need a cosigner. You should be looking at cars in the $10K -$15k range and should be putting as much money down as you can comfortably afford to. You should head over to r/personalfinance they have a pretty comprehensive wiki designed and a solid community that really helps people improve their financial acumen.
In most cases if you have a cosigner they will also be a co-owner it's important to learn about that and what possible impact that can have.
havnar-@reddit
A credit score is not a measure of success. It’s just how high quality of dairy catle you are to creditors for them to milk
ace_deuceee@reddit
For one, why do you care whether the salesperson gets a commission bonus, why are you actively trying to make sure that they don't get one? Based on your post, that's the only thing you mention about the down payment.
There may be a down payment required by the lender, then you get to decide whether you want to add more on top of that. Some sort of down payment is ALWAYS a good idea. Any time you buy a car, the value drops. You never want to be under water on a loan, and paying zero down payment is a good way to be under water from the get-go. The higher the APR, the bigger the chance is that you'll be under water at some point in the loan, so more down payment is better. A large down payment will also save you interest on a high APR. Check out this article from the Money Guy https://moneyguy.com/guide/20-3-8-rule/ 20% down, 3 year loan, payment is less than 8% of your gross income. Following this rule makes sure you're not stretching too far with the payment, and you're always staying above water.
If you can't follow the 20/3/8 rule, then find a cheaper car. To be honest if you're trying to buy a car with zero down payment and are worried about a high APR, you should absolutely not be buying a car near $30k. Also since it sounds like you're new to loans and finance, 0-3% interest is considered very low, 3-7% or so would be medium and is worth putting whatever down payment you can comfortably afford. 7% or higher is high interest and should be avoided if possible. If all you qualify for is over 7%, then you should be buying the cheapest car that's reliable and paying it off ASAP, or just saving up cash. I would say anything over 10% shouldn't even be considered and only buy a beater with cash.
2222014@reddit
Down payment has absolutely nothing to do with the salespersons commission, where in the world did you get that idea?
helloimyahyahhh@reddit (OP)
I was misinformed.
jstar77@reddit
That's not how a down payment works.
havnar-@reddit
This should just go straight on /r/ShitAmericansSay
Direct_Cabinet_4564@reddit
If you have $30k to spend on a car, it should be a new car with a warranty. You should also have a down payment so you don’t get raped on interest charges over the life of the loan.
9BALL22@reddit
Do you really think that a salesperson doesn't get paid if no down payment is needed on a car loan, or did I misunderstand ?
helloimyahyahhh@reddit (OP)
No of course I know they get paid. I was told they get a bonus with your down payment, clearly was misinformed.
helloimyahyahhh@reddit (OP)
No of course I know they get paid. I was told they get a bonus with your down payment, clearly was misinformed.
GamePois0n@reddit
don't buy that car lmao, why do poor people love to live outside of their means?
helloimyahyahhh@reddit (OP)
Who said I was poor? Hahah learn how to read. Never did I mention I did not have money. I live in California & have a really good job buddy, this is not advice.
GamePois0n@reddit
if you need to co-sign a car, you are poor
yungingr@reddit
With a thought process like this, it's easy to understand why your credit needs work.
helloimyahyahhh@reddit (OP)
Yeah well I didn’t have anyone to teach me how it works. Chillax dude I didn’t ask for your opinion, it’s not advice. Thanks
SignificantToday9958@reddit
You literally asked for opinions
helloimyahyahhh@reddit (OP)
Advice & tips not your personal opinion. They’re not the same.
SignificantToday9958@reddit
Get a cheaper car without a cosigner so you don’t fuck up their credit too.
yungingr@reddit
You want advice?
Spend some time with a financial advisor before you fuck yourself up more.
helloimyahyahhh@reddit (OP)
Yeah no shit Sherlock
Inquisitive-Carrot@reddit
Do you absolutely need a down payment for a used car? Only the bank can really answer that question for your particular situation. Although if you’re at a dealer whose selling point is that they work with any credit you’re pretty much at their mercy.
And I don’t know where you got the idea that the down payment is the salesperson’s commission. In a non BHPH situation, if you finance a $35,000 car, the dealer is getting $35,000 from the bank as a lump sum no matter how much you put down. That’s called “funding” the deal. The down payment amount is between you and the bank: in the example above, if the bank is willing to lend you $35,000 right away, then that’s 0 down payment. If the bank is only willing to lend you $20,000 for whatever reason, you need to contribute the other $15,000 as a down payment if you want that $35,000 car.
BHPH is a whole separate cut of beef that I know very little about, but my guess is that whatever their financial framework to “sell” a car is; it’s designed to be as confusing as possible for the average person.
Square-Wild@reddit
A few things.
Your down payment has nothing to do with the commission bonus. At most dealerships, the salesperson's commission is something like 20% of the difference between the sale price and the invoice, with a floor of $200. So if you agree to a price of $30k, it doesn't matter if it's 100% cash, $5k down/$25k loan, or $0 down/$30k loan. The finance guy will be commissioned based on your financing company and add-ons (GAP, Extended Warranty, etc.).
A dealer that claims to finance everyone is probably cutting corners somewhere else. Maybe the finance terms are terrible, maybe they're good at buying turds and shining them up, etc.
If it were me, I'd get a finance quote from a credit union ahead of time. Figure out if they will finance you for $35k, and if the terms are 5%/72 months or whatever. Once you have that, that takes an incredible weight off your shoulder for negotiations. When you're speaking with the salesperson, one thing that they can do is make it seem like maybe you won't be able to leave with the new car today. Once they plant that seed, you're much more likely to feel relief when they say "Good news! My finance guy pulled some strings and got you approved for 6 years!" (meanwhile, the rate is 14.99%)
helloimyahyahhh@reddit (OP)
Thank you! This is amazing advice, I appreciate the breakdown. So helpful!!
Mmarotta44094@reddit
You can get a bad credit car loan at most dealers. I would highly suggest attempting anything other than a buy-here pay-here if you have a good cosigner. You likely will have a down payment requirement but its hard to say without having a credit application of both parties and analyzing it. If you are not that bad and the cosigner is good it might not be neccessary depending on other factors such as income and the vehicles value/price. As far as a commission being tied to down payment that sounds like a buy here pay here thing as every dealership I have ever worked with pays on profit and down payment usually has little bearing on that.
ThatOneVQ@reddit
No
helloimyahyahhh@reddit (OP)
Hahahah thank you! The realest one here
scrappybasket@reddit
You’ll get a better interest rate with a down payment, usually about 10%. But now always. Ask the finance person, they’ll be able to help you get the best rate. That’s the only thing you should be worried about
timothythefirst@reddit
You can get a car without a down payment if your credit is good, most people just advise against it because you’ll pay a lot more in interest
helloimyahyahhh@reddit (OP)
Thanks I thought so too, my co-signer has amazing credit so I’m hoping not to put so much down. I was just trying to get advice from car gurus lol
FlounderKind8267@reddit
If your credit needs work, why are you getting such an expensive car? There should be plenty of great options in the 20s
helloimyahyahhh@reddit (OP)
Yeah you’re right. I just wanted a newer model, I guess I’ll have to settle for the meantime. Thanks
MuttJunior@reddit
There's no legal requirement. It's up to the financial institution if they require it or not. And since you don't have the best credit, they most likely will.