How Much Should Your Down Payment Be?
Purchasing a vehicle is one of the largest purchases that you will make in your life. With this, it is important to weigh your options and understand each aspect of the auto buying journey. This includes how much your down payment should be.
Why Is a Down Payment on a Car So Important?
The down payment that you make when purchasing a vehicle is important because it has a direct impact on your loan in numerous ways. For instance, your monthly payment will be affected by how much money you put down since it reduces the overall amount of the loan. The repayment term and interest rates are also impacted by the down payment.
How Much Should Your Down Payment Be?
There is no true one-size-fits-all answer to how much you need to put down on a vehicle. However, a good rule of thumb when buying a new vehicle is to have your down payment by 20% or more of the total purchase price. If you are buying a used vehicle, you may be able to put 10% down.
Ultimately, the down payment amount that is required may be affected by your current credit score and credit history. The lower your credit score, the more difficult it will be to obtain an auto loan. This is because the lender views individuals with low credit scores as a significant risk. However, it is possible to increase your chances of securing a loan by paying more down, as this brings down the overall risk.
Why Should You Make a Larger Down Payment?
There are quite a few reasons you should make as large of a down payment as you can when buying a car.
Lower Monthly Payments
When you make a larger down payment on a vehicle purchase, you can expect your monthly payments to be lower. For the most part, the more you can put down, the less you will be required to pay on a monthly basis.
Shorter Auto Loan Term
When you don’t have much to put down and need as low of a monthly payment as possible, you may be tempted to take the maximum loan term. While this does lower your payments, it also means you will be paying longer and more interest.
By offering up a larger down payment, you may be able to choose a 48-month loan term as opposed to paying your vehicle off in 60 months. With the larger down payment, you can pay your vehicle off faster while minimizing the monthly financial impact the payment has.
Lower Interest Rate
More often than not, you will receive a lower interest rate when you’re able to put more down on the vehicle purchase. Further, since your total purchase price (loan amount) is lowered with a large down payment, you won’t pay nearly as much interest over the term of the loan.
Improve Chance of Approval
If you are buying a car with no credit history or a lower credit score, then a larger down payment can improve your overall odds of being approved for the loan. In the event you do get approved, you will get to benefit from a lower interest rate and better loan terms overall.
How Much of a Down Payment Is Right for You?
While there are many benefits to making a large down payment on a vehicle purchase, it is important to determine an amount that works for you. In other words, you never want to completely drain your savings account in order to put a larger amount down. It is crucial to keep enough money put back to serve as a solid emergency fund in
the event something unexpected occurs.
Tips for Saving for a Down Payment
When it comes to saving for an auto down payment, it is a good idea to create a financial budget. Make sure you know how much money you have coming in each month and how much you have going out. This will allow you to get a decent idea of where money can come from for the down payment.
If a vehicle purchase is important to you, it is a good idea to cut back on your spending habits. Try opting for coffee at home rather than stopping at Starbucks every morning and spending $6 a cup. At $6 a day, you would save $180 in a month. Look for any way that will allow you to decrease spending so you can increase your down payment savings.
Through all of this, consider working on improving your credit score, since a higher score can help get better interest rates and loan terms. If you’re past due on a bill, get caught up and pay all your bills on time. You should also bring those credit card balances down to improve your debt-to-income ratio.
If you have any questions regarding saving for a down payment for a vehicle purchase, reach out to our sales and finances team at Gerry Lane Buick GMC. We are happy to sit down with you to discuss what options you have.
How Much Should Your Down Payment Be?
There is no true one-size-fits-all answer to how much you need to put down on a vehicle. However, a good rule of thumb when buying a new vehicle is to have your down payment by 20% or more of the total purchase price. If you are buying a used vehicle, you may be able to put 10% down.
Ultimately, the down payment amount that is required may be affected by your current credit score and credit history. The lower your credit score, the more difficult it will be to obtain an auto loan. This is because the lender views individuals with low credit scores as a significant risk. However, it is possible to increase your chances of securing a loan by paying more down, as this brings down the overall risk.
Why Should You Make a Larger Down Payment?
There are quite a few reasons you should make as large of a down payment as you can when buying a car.
Lower Monthly Payments
When you make a larger down payment on a vehicle purchase, you can expect your monthly payments to be lower. For the most part, the more you can put down, the less you will be required to pay on a monthly basis.
Shorter Auto Loan Term
When you don’t have much to put down and need as low of a monthly payment as possible, you may be tempted to take the maximum loan term. While this does lower your payments, it also means you will be paying longer and more interest.
By offering up a larger down payment, you may be able to choose a 48-month loan term as opposed to paying your vehicle off in 60 months. With the larger down payment, you can pay your vehicle off faster while minimizing the monthly financial impact the payment has.
Lower Interest Rate
More often than not, you will receive a lower interest rate when you’re able to put more down on the vehicle purchase. Further, since your total purchase price (loan amount) is lowered with a large down payment, you won’t pay nearly as much interest over the term of the loan.
Improve Chance of Approval
If you are buying a car with no credit history or a lower credit score, then a larger down payment can improve your overall odds of being approved for the loan. In the event you do get approved, you will get to benefit from a lower interest rate and better loan terms overall.
How Much of a Down Payment Is Right for You?
While there are many benefits to making a large down payment on a vehicle purchase, it is important to determine an amount that works for you. In other words, you never want to completely drain your savings account in order to put a larger amount down. It is crucial to keep enough money put back to serve as a solid emergency fund in
the event something unexpected occurs.
Tips for Saving for a Down Payment
When it comes to saving for an auto down payment, it is a good idea to create a financial budget. Make sure you know how much money you have coming in each month and how much you have going out. This will allow you to get a decent idea of where money can come from for the down payment.
If a vehicle purchase is important to you, it is a good idea to cut back on your spending habits. Try opting for coffee at home rather than stopping at Starbucks every morning and spending $6 a cup. At $6 a day, you would save $180 in a month. Look for any way that will allow you to decrease spending so you can increase your down payment savings.
Through all of this, consider working on improving your credit score, since a higher score can help get better interest rates and loan terms. If you’re past due on a bill, get caught up and pay all your bills on time. You should also bring those credit card balances down to improve your debt-to-income ratio.
If you have any questions regarding saving for a down payment for a vehicle purchase, reach out to our sales and finances team at Gerry Lane Buick GMC. We are happy to sit down with you to discuss what options you have.