Be it the festive season or the end of the year, the offer of ‘Zero Down Payment’ shines the most in the advertisements of car dealers. Who wouldn’t be attracted by the dream of taking home a gleaming new car without keeping a single rupee in your pocket? For middle class families this offer seems like a lottery.

But there is a simple rule of the financial world, nothing comes for free. What you think is a ‘great opportunity’ without having to spend money out of pocket may actually be a well-planned trap to drain your pockets in the long run. Signing this deal without knowing the bitter truth hidden behind the glamor of the advertisement can cost you a lot. Let us try to find out what is the real truth behind it?

everything is not what it seems!

When a dealer says that you do not have to make a down payment, it does not mean that the price of the car has been reduced. This simply means that the bank is giving you a loan of 100% of the on-road price of the car.

In a normal loan, you pay 15% to 20% of the cost of the car yourself and take the rest as a loan. But with zero down payment, your loan amount (principal amount) becomes very big. The larger the loan, the higher will be the total interest charged on it. That is, you will return more money to the bank in the form of interest in the next 5 to 7 years than the money you are saving in the beginning.

Hidden troubles: processing fees and hefty interest

There are many financial complications behind this tempting offer, which dealers often hide in the fine print –

High interest rates: Banks consider giving loan without down payment as ‘high risk’. To compensate for this risk, they charge 1% to 3% more interest than normal auto loans. This difference may seem small, but on a loan of 5-7 years it becomes an additional burden of lakhs of rupees.

Huge processing fees: ‘Zero down payment’ schemes often have very high processing fees and documentation charges. Many times dealers add this money to your EMI itself, due to which you may not realize it immediately, but your pocket keeps getting cut.

Mandatory Accessories and Insurance: To avail this offer, dealers often impose a condition that you will have to buy insurance and expensive accessories from them only, which are much more expensive than the market price.

Shock of ‘depreciation’

As soon as a new car leaves the showroom, its resale value directly reduces by 10% to 15%. If you have taken a 100% loan, then in the first 2-3 years the situation is that the market value of your car is less than the amount of loan you have to repay to the bank. In financial language it is called ‘upside-down loan’. If the car meets with an accident during this period or you want to sell it, your entire bank loan will not be repaid with the amount of the insurance claim.

How to avoid this trouble?

If you really want to save money, then keep these things in mind-

• Must make 20% down payment: This will reduce your loan amount and you will get the loan at a lower interest rate.
• Talk to the bank yourself: Go straight to the banks and compare their regular car loan with the dealer’s offer.
• Understand Total Cost: Write down from the dealer how much money (principal + total interest + fees) you will pay till the loan expires.

Summary: ‘‘Zero down payment’ is just a marketing tool. Buy a car only when you are in a position to make a decent down payment, so that your new car becomes a joyous ride and not the mental stress of debt.