100% Financing Loans for New and Used Cars

March 8, 2012

No money down car loans, also known as 100% financing loans, are easy to get if you have good credit. Getting them at good rates requires some skill.

You should research the car that you wish to buy by comparing the prices of used and new versions of it. Compare the interest rates and the loan terms between the new cars and the old cars. It is crucial to understand whether 100% financing is going to be more expensive for a CarsDirect new car or a used car with respect to the Annual Percentage Rate (APR), the monthly payment and the loan term. Credit history and refinancing are two options that you can consider to lower the interest rates on 100% financing.

Credit History
As the interest rates for 100% financing loans are high compared to the loans that involve a down payment, having a good credit history helps in getting low interest rates for 100% financing auto loans. Being pre-approved for a loan by another auto loan lender backed with a good credit score helps in negotiating for a low interest rate. Having a good credit history is beneficial when financing a new as well as used car.

Refinancing
Another way of lowering the interest rates on 100% financing loan is to refinance it with another auto loan lender. This can be achieved after making regular payments to your original auto loan lender until your credit score has improved. After building a good credit history, you can research auto loan lenders or reputed financial institutions that would offer lower interest rates than your current car loan rates.

Going for a 100% financing loan is a good option if you want to buy a car but do not have enough money to make the down payment. Depending on the car loan rates offered, loan terms, and your budget for the monthly car loan payments, you can decide whether you want to go for a used car or a new car.

Understanding 100% Financing Loans

100% financing loans require no down payment. Rather, the full cost of the car is taken out in a loan. Take a few minutes to read through the information here and hopefully you will leave with a better understanding of the process.

No Money Down Loans
Also known as no money down loans, 100% financing loans, if you qualify, cover the full cost of the car you wish to purchase. Online lenders and credit unions are two of your options when in the market for a no money down loan. Your credit score will factor heavily into the approval process. With excellent credit, you are much more likely to be approved for a loan. Depending on the market conditions, some lenders will offer 100% financing loans for certain brands of automobiles. Occasionally lenders and dealers will work together to try and move their merchandise, and 100% financing is one of the ways to do it.

Car Loan Payments
Your monthly payment is critical to maintaining good credit but also to ensure you are not in over your head. Keep in mind, with 100% financing you will be paying back the entire amount of the purchase price plus interest, so the monthly payment might be correspondingly high. Some 100% financing loans are interest only loans, whereby you pay back only interest for a certain amount of time until you start paying back the principal.

Auto Loan Terms
The terms of your 100% financing loan are important, for they will determine your interest rate, monthly payment and period of repayment. Good credit goes a long way in securing a favorable interest rate. Some 100% financing lenders might require that your trade-in (if you have one) is worth more than you owe in order to qualify. Also, the determination of the desired car's value plays a role in financing approval. Through online lenders, you simply apply for the loan which usually comes with instant conditional approval. Then you work through your options, setting the length of the loan, start date, and due date each month. If you agree to automatic payments, a fraction of the interest rate may be knocked off.

Car Loan Options
You have options when you seek a car loan. If your credit is excellent, you may qualify for 100% financing. If not, there are many opportunities available for you to lock in a great interest rate. Even if you have to pay a down payment, it is ultimately a good thing because it means less you'll have to pay in interest over time. Keep an open mind, and you'll find the loan that is perfect for you.

Balancing Negative Auto Equity

When it comes to applying for 100% financing loans, if you have negative equity on your car, you will have to settle a few things before you will qualify. In order to be eligible for no money down loans, you are typically required to have excellent credit, and many potential lenders will not approve your application if you owe more on your trade-in CarsDirect than it is worth. It is important that you balance out the negative equity on your current car first or find an arrangement that will do so. Only then will you get the auto loan terms you seek.

Your first call should be to the holder of your current loan. Find out from them how much you owe on your car. This amount is called the payoff. Once you know it, you can find out the determined value of your car from a reputable appraiser such as Kelley Blue Book. Knowing these two figures, you can accurately assess your situation. If the amount you owe is greater than the value of the car, you have negative equity, and it must be remedied before you will be approved for 100% financing on a new car.

The most basic way to remedy negative equity is to forgo purchase of the new car for a period until which time you have brought the amount owed down to less than the car's worth. By increasing your car loan payments, you may be taking on a bit more financial burden each month, but your goal is to erase the negative equity. Once you owe less than the car's value, pending application approval, there should be no issue with the trade-in.

Another option you might consider involves a little preliminary research with prospective dealers. Inquire around and find out how much of a rebate you can receive with a new car purchase. If, for instance, you owe $13,000 on a car valued at $10,000, you have $3,000 worth of negative equity. If a dealer is willing to give you a $3,000 rebate on your purchase, you break even in terms of the car's value and what you owe. At this point, being approved for 100% financing is more feasible.

You should also find a dealer who uses your highest credit rating. Because there are a few companies who compile credit reports, they are not always the same. Find out the highest of them and make your purchase with a company that uses that one.

Your credit score will factor greatly when being considered for 100% financing on an auto loan. If you have negative equity on your trade-in, you will have to first balance out that figure. Laws are different state to state, but chances are if you owe more on the car than it's worth--even if you can trade in a car with negative equity--you probably won't be approved for a no-money down loan. Take the time to figure out what you need to do to get out from under the negative equity first, then you will be in a better position to apply for 100% financing.

Are 100% Financing Loans a Good Idea?

Even though the option is there, it doesn't necessarily mean that everyone should get a 100% financing loan. The biggest reason not to get one is that you can get a much better interest rate on a loan with a bigger down payment. The more money you put down on a car, the less you will end up paying in interest. Even putting down 5% can be a huge improvement over nothing.

Buyers with Bad Credit
If a borrower has bad credit, a 100% financing loan can get them a car with very little out of pocket cost. The drawback to this is that you are going to be paying much higher interest rates. A borrower with bad credit can always try to refinance the car after some time to improve the interest rate.

The main problem with 100% financing is that your interest rates will be very high. Not only will it take you longer to pay off the loan, but your monthly payments will also be much larger.

Some lenders will also charge you extra fees when you buy the car. You need to be very careful and make sure you have all the financial information before you close. You should also go to more than one lender to find the best loan rate.

Benefits
Often, the rates of the loan are fixed, so you don't need to worry about the interest rate going up. This way you know exactly how much you will need to pay a month. These types of loans are also good for people who are on a pension or have another type of fixed income. Although there are certain qualifications you need to meet before getting one of these loans, like age and having a full time job. Cars typically will have to be less than 5 years old or the loan won't be worth it to the lender.

Planning for the Future
The most appealing part of 100% financing is for people with little money or bad credit. For some buyers, 100% financing is the only way for them buy a car. Once they are able to buy a car, they now have an investment and they still have some cash in case of an emergency later. After they've kept up with their payments for a certain amount of time, they will have rebuilt their credit and can now qualify for refinancing.

Of course anyone financing should shop around to get the best rate. A borrower needs to be very realistic about what they can afford and what kind of payments and rates they want. Knowing this will help you with the shopping process.

Getting Good Rates

Car loan rates for 100% financing loans, also referred as "no money down loans," are high because the lender faces a huge loss if the borrower defaults on the payments. The high interest rates lead to high monthly car loan payments. The only way in which you can benefit from 100% car financing is if you can get good interest rates for your car loan. Fortunately, there are a few ways to get 100% financing loans with low interest rates.

Build an Impressive Credit History
If you have a good credit score, you are in the position to negotiate low interest rates for 100% financing with your auto loan lender. As the auto loan terms depend on your credit score, it is important to have a good credit history. If you need to improve your credit score it is a good idea to consult a credit repair company. A good credit history will help you to be pre-approved for a loan from another auto loan lender or a reputed bank. It is essential to achieve a clean credit report with no charge offs. Being aware of your credit score and being pre-approved for a loan, makes it simpler to negotiate for low rates.

Employment and Location Stability
The possibility of achieving good rates is strong if you have a stable employment history. The auto loan lenders feel assured about the monthly payments and do not consider it as a risk in offering a low interest rate on your loan. It helps to be patient about applying for a 100% financing auto loan if you have relocated in the last 6 months. Most auto loan lenders consider it as a potential risk if you do not have a long-term residence and may charge a high interest rate.

Refinancing Your Car Loan in the Future
Refinancing your loan with another auto loan lender offering better loan requirements is a good way to lower the interest rate that you pay on your car loan. Refinancing can be achieved by making consistent payments for your 100% financing loan until the amount of money that you owe is equivalent to what it would have been if you have would made a significant down payment. You can then choose to refinance your loan with a different auto loan lender or a financial institution that will help in decreasing your interest rate. The regular payments to your original auto loan lender will also help in building a good credit history. A good credit score will help in achieving a better deal with your new loan lender.

100% financing is a good option if you wish to buy a car and you do not have enough money to make a down payment. Even though 100% financing involves high loan rates, you can overcome this disadvantage by following the suggestions that have been explained above.

How to Find 100% Financing Loans for Cars
Go to your local credit union. Check here first, for you might be qualified for 100% financing. A lot will hinge on your credit history and ability to pay back the loan based on employment, but if you have been reported to a credit agency no more than once in the last seven years and not once in the last year, chances are you have great credit and might be approved for 100% financing.

Check online. The next place to look is at different online lenders and the types of loans they offer. If your search is diligent, you will find several that offer 100% financing car loans. There are a few strings attached to the offers of 100% financing, such as the need for excellent credit. Approval can also depend upon the determination of value of the car you wish you purchase.

Be flexible. You may qualify for 100% financing, but if you don't have a favorable APR, you could be paying a high monthly payment. If you sign up for automatic payment you are more likely to pay less per month. Occasionally, lenders have arrangements with particular car manufacturers that offer incentives like 100% financing on certain types of cars. Be flexible with the car you want and the payment plan, and you'll come out ahead.

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