The down payment on a car is the amount of money that the buyer gives to a dealership upfront, before signing any loan agreements or making monthly payments. This money helps the dealership’s finance experts determine how much of a loan to offer. Often, this amount can mean a lower monthly payment or interest rate.
Average down payment on a car is 11% to 20% of its value
When buying a new car, a down payment of 20% is recommended to protect the car from depreciation. A new car loses 20% of its value in its first year and more each year after that. If you can afford to pay 20% down, you can get a better deal on your car loan, which will lower your monthly payments. A 20% down payment will also protect you from the risk of being upside down on the loan.
Depending on your budget and the type of car you’re looking for, you may be able to pay less than 20%. However, you should aim for a down payment of between 10% and 20% of the car’s value. By doing so, you will avoid excessive monthly car payments, longer loan terms, and excessive bank finance charges. Plus, a larger down payment will prevent negative equity in your car if you sell it.
Putting down 20% is ideal
Putting down 20% on a car is ideal because it prevents you from owing more than the car is worth, and it can help you qualify for a lower interest rate. While it can be difficult to save up this much money, the benefits outweigh the drawbacks. In addition to lowering your monthly payments, you will also build up equity faster.
Whether you can afford to put down this much money will vary from loan to loan. In general, experts suggest putting down 20% on a new car. The higher the down payment, the better the car loan terms will be. However, if you’re buying a used car, putting down only 10% will save you money in the long run.
Trade-in value can be used to make a down payment
If you have equity in your current car, you may be able to use the trade-in value to make a down payment on a new car. Equity is the difference between the current vehicle’s market value and the outstanding balance on your auto loan. For example, if you have a $5,000 trade-in value, you can apply $2,000 of this equity toward your down payment. This will allow you to save a total of $8,000 on your new car.
However, if you have negative equity in your car, you should try to get the best deal possible for your trade-in. Some lenders will not accept trade-ins with negative equity. For this reason, it’s best to wait until you have positive equity.
Getting a loan with a 20% down payment
Making a larger down payment can have a significant impact on your ability to get approved for a car loan. It also improves the terms of your loan. Some lenders require just a 10% down payment while others require as much as a 20% down payment. Either way, a higher down payment has a number of benefits, especially when you’re looking to buy a brand new or used car.
Putting a 20% down payment on your loan reduces the interest you’ll pay on your loan, and it also lowers your risk of ending up in an upside-down position. In addition to that, a 20% down payment will allow you to take advantage of a lower interest rate if the car you are buying depreciates significantly during its first year.
Getting a loan with a lower down payment
While it’s tempting to get a loan with a low down payment when buying a car, doing so can put you in a position of greater financial risk. The risk comes in the form of higher interest rates and larger monthly repayments. Moreover, a lower down payment can lead to greater negative equity. To avoid this, you should always work with reputable lenders.
Another way to secure a loan with a low down payment is to make sure the car you want is affordable. If the car is too expensive, you should consider a cheaper model. If this is not possible, ask the loan specialist for an estimated down payment range.
