It can include cash, the trade-in value of the vehicle you drive now or a mix of the two. Part of your decision will depend on where your credit score stands. There's no one-size-fits-all answer for how much of a down payment to make on a car.
Key factors that drive how much you should put down include whether you're buying a new or used car, along with what your credit situation is. If so, it could pay off. A lender might extend better terms, such as a lower interest rate, when you make a substantial down payment.
Depreciation refers to the ever-shrinking value of your car. Each year after that, there's even more depreciation. If you wind up selling the car while you're upside down on the loan, you'll need to come up with money to bridge the gap between the sale price and the loan balance.
Another thing to think about: If your car is totaled or stolen, your auto insurance policy will cover only the depreciated market value of your car when you have what's known as "actual cash value" coverage.
Optional "replacement cost" coverage typically would pay you more money for a totaled or stolen car. With actual cash value coverage, you'd be on the hook for paying off the remaining balance on the auto loan.
Now, what if you're taking out a loan for a used car? That's because the value of a used car already will have depreciated quite a bit. If you've got a low credit score , it can be very helpful to come up with as much cash as you can for the down payment. This will reduce the size of the loan you'll need to cover the cost of the car, which brings down the lender's risk. If a lender is more comfortable taking you on as a borrower, you may have an easier time getting approved for financing, and could be offered better terms, including a lower interest rate.
There are several great reasons to make a larger down payment on a car. They include:. Making a larger down payment can have many benefits, but when trying to figure out the right amount for you, be sure not to drain your savings accounts for the sake of the above benefits.
It's key to keep enough money in your bank account to act at least as an emergency fund. Depleting your assets can also set you back in your progress toward other financial goals, such as a down payment on a house. How to Save for a Down Payment You can take many approaches to saving up for a down payment.
Here are four of them:. You might even pursue all four of these strategies to save for a sizable down payment. These external web sites may not be affiliated with or endorsed by the credit union. Use of these sites are used at the user's risk. CU SoCal does not provide and is not responsible for the product, service or overall website content available at these sites.
The privacy policies of CU SoCal do not apply to linked websites and you should consult the privacy disclosures on these sites for further information. Continue Cancel. Proceed to Online Banking. Learn faster - Insider car buying tips. There are many benefits to putting a large down payment on a car when financing it. These include:. This extra money will add up over time and help decrease interest charges over the length of your car loan. Rydeshopper Edmunds MotorTrend.
Analyze deeper - Insider car buying tips. Having an idea of what price you want to pay for the vehicle will help you estimate how much money you will need for a down payment. Larger down payments will help you avoid high monthly car payments, longer terms, excessive bank finance charges, and being in a negative equity situation when you decide to trade or sell the car in the future.
Putting a little money down is always better than putting no money down. Taking the time to save up a down payment before buying a new or used car will pay off tenfold when it comes time to trade in your vehicle.
Having a large down payment will also increase your chances of qualifying for a low-interest car loan. You can apply for a loan with your bank or credit union, but I suggest using online auto finance lenders for the best interest rates. Best New Car Quote Services. RydeShopper has one of the largest new car dealership networks in the world. Edmunds is one of the oldest and best new car research and review sites on the internet. MotorTrend is one of the best kept secrets on the Internet.
Best known for their automobile magazine, MotorTrend has a vast dealer network across the nation. Pick a vehicle, select local dealers, and receive discount pricing. CarsDirect has been in online vehicle research business since and has all the right tools to help you find your next car, truck or SUV. They offer a no-hassle experience from configuring a car to making the final purchase.
These down payment amounts are only suggestions:. If you know how much money you have to put down and would like to know what percentage it would be of the purchase price. This gives you a See more automotive insider tips. If you want to buy a car and are lacking a down payment. DO NOT fall for an extended term, car dealers do this by increasing your car loan term, sometimes extending it out by a few years or more. Extending your loan term does indeed lower your total monthly car payment by spreading your total amount financed over a longer period of time.
These people do whatever it takes so they can drive a certain car they want. Extending your term out 72, 84, and even 96 months is just asking for trouble.
If you were to take the term out to 42 or 48 months, your monthly payment would be a little less. However, you will start to increase your interest charges. Many people are afraid to put money down when they buy a car because they believe the dealer will steal it from them.
As long as you keep track of your down payment money you will not have a problem.
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