So, that Toyota Corolla you bought in the 90s has finally stopped being a functional car. Or maybe that Chevrolet Cruze your parents got you for high school graduation in the early 2000s just got totaled. You realize it’s finally time for a new car, but should you be putting a down payment on a new (or used) car?
The majority of lenders suggest you put a 20 percent down payment on a new car. But, if you can’t afford to put that much down, it’s highly recommended you put a percentage down that’s as close to 20 percent as possible.
This may seem like a lot of money wasted in the beginning, but the truth is that the down payment can only benefit you.
Here are just three of many reasons:
The down payment saves you money
Putting a down payment on your car will cause your monthly payments to decrease. A higher down payment also means the lender may be able to lower the interest rate, or even reduce the term of the loan (in this case, the monthly payments don’t decrease). Either way, having a bigger down payment will mean more options you and the lender have to work.
Your chances for loan approval increase
A down payment is especially helpful for people who struggle with bad credit or have a low credit score. When this is the case you are already at a disadvantage in the eyes of a lender—you are perceived as a financial risk. This can make getting a loan extremely difficult. But with a down payment, especially if it’s at or above 15 percent, your chances for an auto loan may go up.
Equity is important, and the more money you put down, the better the equity. You can calculate your vehicle’s equity by subtracting the value of the vehicle from the amount owed on the loan. For example, your car is worth $8,000 and your auto loan balance is $2,000, you will have $6,000 in equity. You want more equity because the value of your car decreases over time, and this is why people suggest 20 percent for a down payment.
A 20 percent down payment is the ideal amount to put on a car. But, here at Auto Credit Express we understand this isn’t possible for all people, especially those who are struggling with bad credit. We can help by connecting you with a qualified dealer in your area who has the lending resources to help people with credit challenges. Just fill out our auto loan request form to get started.