A down payment is a certain amount of money you pay as deposit to your lender when you apply for auto financing. Making a down payment on the auto loans online received can offer very significant benefits for both the buyer and lender and as a result of this, it is a great idea to make a down payment when you have the means to do so.
In order to offset depreciation, making a down payment of 20% of the value of the car you wish to buy is recommended especially for new cars because they tend to depreciate by a fifth in their first year. Hence, it will be economical to cover this amount by making a down payment to prevent negative equity on the value of the car.
Importance of a Down Payment
Negative equity can cause a couple of problems. For instance, if your car is stolen or totaled, your insurance company will only pay for its market value, and you will be left to find cash for the balance on the car loan. Also, if you decide to sell your car before you have paid it off, having a negative equity or being upside down means that the amount you get from the debt will not cover the debt you are owing on the car. To prevent this kind of scenario, making a good down payment is key when getting an auto finance, as it will help to reduce the loan amount you get, reduce the loan duration, and the interest rate will be reasonable as well.
If you are buying a used car on the other hand, a down payment of around 10 to 12% will be fine for a private-party purchase. However, if you are buying a used car from a dealer, the price will be higher, depreciation greater as a result of this make sure you negotiate a favorable deal for yourself.
In summary, for both used and new car, a down payment of about 12% is fine. But you should bear in mind the more your down payment, the more negotiating power you have. The advantages of making a down payment are as follows;
· It helps to lower the loan amount and finance costs.
· It helps to prevent a negative equity.
· It can help to reduce the interest rate you will get from your lender.
· It improves the chances of a person with bad credit to get approved.
· It will result in a shorter loan term which will in turn help you to save on interest charges.
Use a Finance Calculator
Using a finance calculator will help you to see how a down payment can affect your possible financing and the amount of down payment that will be right for you based on your budget. Adjust the amount of down payment till it fits into your budget such that you can still cater for your other monthly financial responsibilities based on your income.
Remember your down payment might come from your personal savings, or by trading in a car you presently own. Also, improving your credit score can also be of great help as well. Learn more about loans from https://medium.com/@toddmaxham79/do-car-loans-hurt-my-credit-score-b6f443836504.
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