3 Reasons To Make A Car Down Payment
Benefits of making a down payment can include a lower monthly payment and less interest paid over the life of the loan. Let’s look at three reasons why putting cash down on your next vehicle makes a lot of sense — and what you can do if making a down payment isn’t possible. Simply put, the less money you borrow, the smaller your monthly payments and finance costs.
1. You’ll pay less interest
The more money you put down for a car, the less money you need to borrow for the car. With a smaller loan, you’ll pay interest on a lower balance, which means your total interest cost will be less, too. For example,
*If you took out a five-year $22,900 car loan with a 4.5% interest rate, you’d pay a total of $ 2,715.51in interest. But with a 10% down payment ($2,290) on the same car, you’d pay only $2,443.96 in interest on that five-year loan — a savings of more than $272.
20% Is The Golden rule when it comes to down payments; however, we recommend putting down a payment that suits your needs.
2. You may get approved for a loan more easily
A down payment may help you to more easily qualify for an auto loan, especially if you have lower credit scores.
3. Your monthly payments could be lower
Making a down payment and reducing the amount you need to borrow can also decrease your monthly loan payment amount. For example,
Let’s say you buy a vehicle with no down payment. With a five-year $24,000 loan at a 4.5% interest rate, your monthly payment would be $447 (or a little more if you include sales tax in the loan).
But if you made a down payment of $3,000 and borrowed just $19,000 for the same car at the same interest rate over five years, your monthly payment would drop to $354. Making that down payment would save you $95.00 each month.
Making a down payment on a car can save you money and increase your chances of getting a loan — and better loan terms — especially if you have less-than-perfect credit. If you need any additional information on making a down payment, talk to one of our Auto Experts.