The Problem with $0 Down

Via Saving Advice.

Via Saving Advice.

We’ve all seen the signs, “Sign and Drive! $0 Down!”

Seems great, doesn’t it?Who wouldn’t want to “sign and drive” away in a great car?

How many other things would you be able to spend your savings on if there was no down payment required? Just think – you could finally take that vacation you’ve always wanted! Before you get too excited, these “sign and drive” deals, not surprisingly, come with a catch. Let’s take a look at how it works.

$0 Down Now, Much More Later

In order to qualify for seemingly generous $0 down payment deals, excellent credit is generally a requirement. Despite your credit score, most dealerships offering “no down payments” do so because they take “hold checks” instead of an up-front payment. This means that over a period of time the buyer is required to provide a series of checks to the dealer on specified dates. However, more often than not this system results in a much higher debt load than simply paying a down payment, as buyers struggle to make their monthly payments and issue timely “hold checks.”

The Price of Convenience

If documented correctly at the time of purchase, this “sign and drive” model is technically not a scam. Unfortunately, many dealerships fail to properly document each aspect of the “hold check” portion of the agreement, leaving car buyers to bear the burden of proof should a legal issue arise. So, what’s the best way to avoid the headache of “sign and drive” deals? Let’s review some tips for cautious car buying.

A Better Alternative to “Sign and Drive” Agreements

Unfortunately, most people who sign up for “sign and drive” deals do so impulsively. The best way to ensure your car purchase experience goes smoothly (and there are no hidden surprises) is to properly prepare. Take these steps before starting your car buying journey.

Make sure to budget for a new or used car.

Make sure to budget for a new or used car.

Create a budget.

Before considering the purchase or lease of a car, your budget needs to be in tip top shape. Start your budget by comparing your expenses to your income. Do you have wiggle room? Enough to afford a car payment, insurance, gas and maintenance? If not, trim down your budget and plan to save before purchasing a car.

Plan to save 20% for a down payment.

Although the average down payment is 11%, the recommended down payment amount is 20%. This means that for every $20,000 you plan to spend on a car, you need $4,000 saved towards a down payment. Without a down payment, you’re likely to fall into the “sign and drive” trap. Saving for a large down payment not an option? Leases can often offer lower down payments and even more flexible payment options.

Do research online.

Prior to heading to your local car dealership, do a substantial amount of research online. Narrow down what car types meet your needs, their features and get a rough idea of ownership costs. How costly is it to insure your desired vehicle? Does your chosen vehicle have a history of safety concerns? Do you need a vehicle with certain features?

Overall, it’s best to do your homework before purchasing a vehicle to avoid the lure of $0 down payment offers.

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  8 Comments

  1. yanira   •  

    Do I have to have auto insurance in order to drive my car off of the lot?

    • DriveTime   •  

      Hi Yanira – You will need to have auto insurance to purchase a vehicle from us. If you have additional questions, feel free to contact your local dealership to talk to one of our Sales Advisors about purchasing a vehicle! Thank you – Tiffany|DriveTime Community Manager

  2. crystal hall   •  

    is there any way I can get a lower payment

    • DriveTime   •  

      Hi Crystal – Thank you for reaching out! I recommend you contact our Customer Relations team over at Bridgecrest, our loan servicing organization. They are more than happy to provide you with all payment options available to you. You can reach them by sending an email with your account number, the name on your account and a description of what you would like to accomplish to RM-BridgecrestCustomerRelations@Bridgecrest.com or by calling 800-967-8526. Thanks again! – Tiffany | DriveTime Community Manager

  3. Miriam Rodriguez   •  

    I recently moved to Florida I’ve only been here for two and a half months. I had a vehicle which why was 2 payment away from owning the vehicle when out of nowhere I had a hit and run someone hit me from behind and totaled my vehicle out. Leaving me with a rental and nothing for a down payment or trade in what are my chances of getting a vehicle

    • DriveTime   •  

      Hi Miriam – I am very sorry to hear this, however I’m happy to hear you are interested in joining the DriveTime family! The good news is that your chances of getting approved for a vehicle with us are high! I recommend you apply online and you’ll be given more information regarding what to expect for a down payment. Thank you! – Tiffany | DriveTime Community Manager

  4. Cheyenne Meadows   •  

    How would I purchase auto insurance without knowing if I got approved even though it says I did on here or which car would be insured?

    • DriveTime   •  

      Hi Cheyenne – We’re happy to hear you’re interested in purchasing a DriveTime vehicle! We recommend calling your local dealership to speak with one of our Sales Advisors as they will be able to answer any additional questions you may have! Thank you!

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