Amara walker March 23, 2023

Buying a dream car is not as easy as it sounds. Even though you are capable of financing a car, you need to carefully assess if you will be able to keep up with payments over time.

To secure a car loan, you should have a down payment worth up to 10% of the market value of your car. It would be good if you could put down a higher value because the greater the down payment, the lower the loan-to-value will be.

There are some people who struggle to have enough down payments. Despite stowing away money for years, they fail to have secured 10% of the value of the car they want to buy. If you are one of them, you will likely think of borrowing to finance the down payment.

You can fund the gap with small money loans in Ireland, but is it practically wise to do so? Some lenders do not mind financing your down payment, so you think there is nothing wrong with it. A lender will never deny ending your money as long as you have a repaying capacity, but you need to assess that you are not taking on too much care.

A lender will only see your current financial condition

If you notice that your savings are insufficient for the down payment, you decide to borrow money to fill the gap. You do not find it worrisome if it is not a large sum of money. When you put in the loan application, a lender will check your income statement.

Although they know that you would take out an auto loan as soon as the loan for a down payment is sanctioned, they will make a lending decision based on your repaying capacity. They will not ask you the type of car you have picked or planning to buy.

Your current financial condition will serve as the basis for deciding whether the loan should be signed off on or not. As of now, no car loan is on your account, so you are more likely to get the approval.

Your bad credit rating can make it or break it

Securing a loan for a down payment is just half victory, or in some cases, it is a hard blow to your finances. Your credit score also matters when it comes to borrowing money. If you have got an impressive credit report, you will get money at affordable interest rates, and when it is not up t scratch, you will wind up with high-interest payments.

It can make it quite challenging for you to keep up with payments when you are financing your down payment with a bad credit rating. Chances are you earn a good amount of money, so it is not flustering, but do not forget that you have financed a down payment to secure a car loan.

Whether you consider borrowing money from a private lender or a car dealer, you will end up with an expensive deal.

  • Your credit score is already bad, calling your credibility into question. A recent inquiry may have further pulled your credit points, so now your credit score is worse. This will attract higher interest rates for your car loan.
  • Knowing that you have financed your down payment, some lenders may turn you down.

Although there are some lenders that offer bad credit car finance in Ireland, this will make it a lot of pressure on your pocket. Now you are not just supposed to clear the dues for the loan for a down payment but also an auto loan.

You may fall behind in payments, which will increase debt costs due to late payment fees. In addition, you will also see your credit points falling down, making it all but impossible to get even emergency loans down the road.

It is a tip of an iceberg. If this continues, your lender will take back the car and cash it out to get their money back. The ramifications of being unable to settle the debt can be extremely bad.

Be careful with zero down payment car finance

When you cannot arrange the down payment, you are more likely to seek to zero down payment car finance deals. It is crucial to note that not all types of borrowers can be eligible for these deals. You must have a very higher credit rating and a substantial income source. Further, not all lenders provide such deals, so your options are very restricted.

One of the benefits of these schemes is you do not have to put down thousands of Euros upfront. You will feel more sorted with your finances, but it can be too good to be true. Zero down payment car finance can cost you a lot of money because of high-interest rates. This is because you prove to be a highly risky borrower, and the size of the loan becomes 100%.

You cannot qualify for these deals if you have a bad credit rating. However, it does not mean that you should go for them in case of a good credit rating. Such deals will be expensive either way.

You should instead try to put in rigorous efforts to put by for the down payment on your car. Here are some of the tips you should follow:

  • Live off a bare-bone budget. Cut back on all inessential expenses.
  • Create a budget and stick to it so that you can keep tabs on your expenses.
  • Increase your income to achieve your goal sooner.

To conclude

It is suggested that you avoid financing a down payment for your car. Doing so will harm your finances down the line. Chances are you will find it harder to manage it with an auto loan. It will increase the size of your loan as well. Find ways to save money for the down payment on your car. To make it happen sooner, you should also try to increase your income streams.