A recent report from TransUnion says car buyers should expect to need larger down payments as we move into 2018.
TransUnion Forecasts Larger Down Payments
TransUnion, one of the three main credit bureaus in the United States, released their 2018 "Consumer Credit Forecast" last month. Overall, they expect a strong consumer credit market in 2018, while they also provided three trends to watch this year in the auto finance market.
In addition to forecasting delinquency rates to slow down and buyers to shift away from new car purchases to used vehicle financing, TransUnion expects auto lenders to require bigger down payments. Their reasoning is that lenders will be looking to combat higher loan amounts, longer loan terms, and lower trade-in values (due to declining used car values).
Lenders require down payments – especially when it comes to borrowers with less than perfect credit – to help consumers meet certain requirements, such as a lower loan-to-value ratio or an acceptable loan length. However, it's in your best interest as a consumer to make a down payment when you finance your next vehicle.
How a Car Loan Down Payment Helps You
A down payment is going to benefit you in several ways:
- Increases Your Chances of Being Approved – TransUnion's report shows auto lenders are approving fewer bad credit car loans as they shift toward lower-risk borrowers. Thankfully, a down payment will increase your chances of being approved. This is because it decreases the amount you're asking to borrow and shows you're willing to put your own money on the line. Basically, the bigger the down payment you can make, the better your approval chances will be.
- Lowers Your Monthly Payments – The average auto loan amount and length have been trending upward for several years now. As cars get more expensive, consumers are extending their loans to lower the monthly payment amount. But this is a poor strategy because it increases the overall cost of a loan through increased interest charges. However, with every dollar you're able to put down, you lower the amount you borrow. When you shrink your loan amount, you're also lowering the amount of your monthly payment without having to extend the term of your loan.
- Save on Interest Charges – The Federal Reserve raised the federal funds rate – which affects the interest rates consumers get on loans and credit cards – three times in 2017, with plans to do so three more times in 2018. Translation: get ready for higher interest rates on loans in the near future. While your credit situation influences the interest rate you get, you can lower the amount of interest charges you pay with a bigger down payment. Using a down payment to lower the principal balance of your loan, you can lower the amount of interest that accrues from the beginning.
The Bottom Line
TransUnion has predicted that borrowers will soon be required to make larger down payments, but consumers should do what they can to save up for one regardless due to the benefits it offers.
If you've got your down payment ready and need a car loan, Auto Credit Express can help you find financing – even if you're dealing with credit trouble. We help car buyers connect to local dealerships that know how to handle unique credit situations. Our service is free and puts you under no obligation to buy. All you need to do to get started is complete our secure online auto loan request form.