You see the ads in the newspaper and hear them blaring from the radio: “Get a new car for zero down!” It sure sounds appealing, but are these offers too good to be true? Can you really buy a car without a down payment?

Yes, you can get a car with no money down, but unless you’re planning to trade in your current vehicle, that zero down payment offer could mean higher monthly payments—and higher costs in the long run. Here’s what you need to know.

Down Payment vs. No Down Payment: What’s the Difference?

Few of us can pay cash for a vehicle upfront, so whether or not you’re making a down payment, you’ll likely be using an auto loan to finance your purchase. However, keep in mind that when you buy a car, you’re not just paying the price of the car. There are additional costs, such as state taxes and registration fees. The dealership may also charge documentation and transportation fees.

If you don’t make a down payment, these fees get rolled into the amount you’re financing. If you’re buying a Kshs.2,500,000 car with zero down payment, for example, you might end up financing Kshs.2,800,000 when all the taxes and fees are added in.

Unfortunately, as soon as you drive your new car off the lot, it begins to depreciate in value—typically by as much as 20% in the first year. If you finance Kshs.2,800,000, and the Kshs.2,500,000 car depreciates by Kshs.500,000 when you drive it off the lot, you now have a car worth Kshs.2,000,000 . . . but you owe Kshs.2,800,000 on it.

When you owe more than your vehicle is worth, that means you’re “upside down” on your loan—which is not a good place to be.

Making a 20% down payment helps ensure that even when depreciation is taken into account, you won’t owe more than the car is worth. In addition, making a down payment can help you get better loan terms.

Even a Small Down Payment Could Help

A 20% down payment is ideal, especially if your credit is less than perfect. However, any size of down payment, no matter how small, will help to reduce your total loan costs and monthly payments.

Suppose you want to buy a car that costs Kshs.2,000,000 with no down payment. With a 60-month loan at 5.13% interest, you’ll have monthly payments of Kshs.41,500. Throw in a Kshs.150,000 down payment, however, and your monthly payments go down to Kshs.38,700.

What if you don’t have any money saved for a down payment? Sometimes you need a new car unexpectedly due to problems with your old car. Good news: Your old car can be part of your down payment as long as you have car equity.

Car equity means your trade-in vehicle is worth more than you owe on it. If you own your car free and clear and the car is worth Kshs.250000, you have Kshs.250000 of car equity. If you owe Kshs.150000 on your car loan but the car is worth Kshs.400000, you also have Kshs.250000 of car equity (Kshs.400000 – 150000).

Add a trade-in worth 250000 to your 150000 down payment, and you have a down payment of 400000 (20% of the new car’s total cost). With a 20% down payment, your monthly payment for the same loan goes down to 30040—a significant difference.

How to Get a Car With No Down Payment and No Trade-In

If you don’t have a down payment or a trade-in, you can still get a new car as long as you have a good credit score. (If you’re not sure what your credit score is, you can get a free score to find out.)

To help reduce your loan costs, start by shopping around for a car loan before you ever visit a dealership. Contact at least three banks and credit unions to see what loan terms you can get. When you find a good offer, get preapproved for a loan. After you fill out a preliminary application, the lender will give you an estimate of how much money they’re likely to lend you and the interest rate they will charge. Being preapproved for a car loan does not obligate you to get a loan, but it can give you more negotiating power at the dealership.