"We'd love to get you into this car, but we're going to need a down payment." These words can be the deal breaker for those who are looking to buy a car. That's why it pays to be prepared for such an occurrence. Of course, how can you prepare for something without knowing any details?
If you aren't familiar with the concept of a down payment, here is what it is: it is the amount of money you bring to the table for a loan. It helps show the lender that you are ready to commit financially to the loan.
When it comes to exactly how much you should put down, 10% or $1,000, whichever is less, is considered the standard amount. So, in order to make the down payment for a $10,000 car, you should expect to have $1,000 at the ready.
Why is a Down Payment Important?
One grand... I know that seems like a lot, but there are other great reasons for having a down payment aside from showing good faith to a lender. Reasons that benefit you.
It will lower your interest charges.
By having money to put down, you are reducing the amount that you need to borrow from a lender, and this results in less expensive interest charges. It also means you now have a lower monthly payment.
Equity is the difference between a vehicle's value and what is owed on it, and negative equity is when you owe more than the vehicle is worth. When you provide a down payment, you immediately begin to build positive value in the car. This means that if you put down 20% on a car, you will be reducing the potential future financial damage in the event that the vehicle is either totaled in an accident or you choose to sell or trade it in shortly after purchasing it.
In the accident scenario, your insurance will only pay off the fair market value of the vehicle (what it is currently worth), and in a sale/trade situation you can only get rid of it for the current value. In either case, you would still owe money on the loan. A strong down payment may keep that from happening.
What If I Don't Have a Down Payment?
In the event that you are unable to come up with the 10% standard, or are only able to drum up $500 for a down payment, there is additional coverage you can purchase to ensure you don't take an extreme financial hit if the car is wrecked. It's called GAP Insurance. This will cover the difference between the loan amount and the fair market value of the vehicle. This can be either purchased at the dealership or through a third party. And you don't need to buy it at the time of the car purchase.
However, keep in mind that this type of coverage only applies to accidents or theft. If you are dissatisfied with the car and just want to sell it or trade it in, you will still be responsible for the remaining balance of the loan.
We Can Help You
So if you are ready to make a significant down payment, or even if you only have $500 to put down, our team here at Auto Credit Express is ready to help you. Get started today by completing the fast and easy online application. From there, we will connect you with the dealers and lenders that can get you into that car you need.