There are two questions that are frequently asked about a down payment on a car: "Do I need to make a down payment to buy a car," and/or "How much should I put down?" The answer to the first question: Only if your credit requires a down payment. If you have good credit, you don't need to make a down payment. Here's why auto lenders usually want down payments: 1.
They want you to prove that you're committed. If you are required to put down a few thousand dollars, the lenders believe you are committed to the loan. Banks feel that if you have made a down payment, you aren't as likely to default on the loan.
You will need to prove that you are committed to a loan if you don't have good credit history. If you are a first-time borrower or do not have an established credit history, you will also probably be required to prove your commitment with a down payment. 2. They want to reduce their risk.
When a borrower defaults on an auto loan, it's usually a pretty big loss for the lender. If your credit history makes the bank think that you might default, they're going to ask for a down-payment (assuming they approve the loan in the first place). But if your credit history is clean, theres no reason to worry about you defaulting and you don't need a down payment. For those with bad credit or no credit, the bank will require a minimum of 10% down.
Many times they will require 20% to 30%. For those of you who are first-time buyers, there are some programs available for you on the purchase of a new vehicle. For example, Ford and Toyota offer such programs that allow you to put little or no money down. If you meet their requirements, you will be able to purchase a new vehicle with a very little down.
The answer to the second question, "How much should I put down," is: As little as possible! Cars are depreciating assets. If you can do anything else with your down payment to help you financially, by all means do it. If instead of putting your money down on a car, you can use your cash to buy a house or pay off a high-interest debt (such as your credit cards), you should do those things.
You should also have an emergency cash fund so that if you get sick or laid off, you have enough cash to make your payments. There are usually better ways to spend money than using it for a car loan down payment. However, there is one case in which you shouldn't "put down as little as possible." If putting a little money down lowers the interest rate on your car loan, you should. If putting some money down will mean a 5.99% rather than a 7.
99% interest rate, it would be a smart decision to do this. You can sometimes get a better interest rate by putting an extra $500 or $1000 down. If you get a lower interest rate, you will save yourself a considerable amount of money on finance charges over time.
Author Jason Lancaster, a car business veteran, created AccurateAutoAdvice.com. You'll find accurate advice on auto loan down payments and car down payments.
