Making a down payment on a car loan works to your advantage. It reduces the amount you need to finance, which lowers your monthly payment and the amount you'll pay in interest charges. Good thing, then, that Edmunds is reporting that down payments continue to rise for both new and used car purchases.
The Latest Data from Edmunds
Edmunds, a leading car shopping website, notes that data from August shows that the average down payment on both new and used vehicle purchases is higher than it was a year ago.
In August, the average down payment was $3,667 for new cars and $2,480 on used vehicles. Those figures represent a 5.9 percent and 7.2 percent increase, respectively, over their August 2016 numbers. Conversely, three other auto finance metrics Edmunds tracks—the average loan term, monthly payment, and amount financed—hardly changed in August 2017 compared to a year earlier.
Edmunds believes that consumers are more willing to finance pricier vehicles, which is leading to high average loan terms and monthly payment amounts. However, car buyers are also trying to remain practical by increasing the size of their down payments.
A Down Payment and Your Budget
One pitfall too many borrowers fall into when financing a car is only thinking about their monthly payment. It makes more financial sense to consider the overall cost of a loan so you don’t lose sight of the bigger picture. The overall price takes all costs into consideration including interest charges and tax, title, and license fees.
Making a down payment is a great way to lower the overall cost of your loan. Think of it this way: an upfront down payment can greatly reduce how much you end up paying in the long run. The more money you're able to put down, the less you need to finance. The lower the amount of your loan, the less in interest charges you’ll end up paying.
That isn't the only benefit of a down payment, either. It also:
- Lowers your monthly payment.
- May allow you to pay off your vehicle sooner.
- Reduces or eliminates how long you'll be faced with a negative equity loan.
- Makes it possible to shorten the loan term without making the monthly payment that much more expensive, which can further decrease the interest charges and the total cost of your loan.
How Big of a Down Payment Should You Make?
Traditionally, the rule of thumb experts suggested for new car financing was 20 percent of the car's selling price. These days, however, with the average transaction price of a new car hovering around $33,000, Edmunds finds that the average down payment amount is closer to 12 percent.
There's no right or wrong answer to how big your down payment should be. The answer depends on your circumstances, including whether you are buying new or used, as well as a host of other factors. Just know that it's to your advantage to save up for one because of all the benefits it offers.
If you are dealing with credit issues, you should also be aware that you may be required to make a minimum down payment. While specifics will vary from lender to lender, the typical amount for a subprime auto loan is at least 10 percent or $1,000, whichever is less.
We Know How to Help
Many major lenders don't work with people who are dealing with credit issues, making it tough to find one that can help you. If you've saved up your down payment and are ready to find financing, you don't have to let this issue hold you back. All you need to do is get the help of Auto Credit Express.
We've gathered one of the largest networks of special finance dealerships in the country. They have the lenders who know how to help consumers in all types of credit situations. Work with us, and we'll connect you with a local dealer at no cost. Get the process started right now by filling out our car loan request form.