How Much Should Be My Car Down Payment?
Most people who consider buying new cars might wonder as to how much of money will be needed for a down payment. Normally, lenders demand about 20% money down from prospective new car buyers.
It is needless to say that down payments enhance chances of obtaining quicker auto loan approvals and that too at the lowest interest rates as well as affordable monthly car instalments.
Besides, there could be few other reasons for which borrowers may think of paying a down payment. These could be as under:
- Obtain better and highly flexible loan repayment terms
- Save money on interests over the entire term of the loan
- Get feel of ownership because of more equity in the vehicle
- Probability of going upside down on the auto loan gets reduced
- Reasonable upfront payments could keep debt levels manageable
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Lower Interest Rate
Large down payments can be helpful in securing lower rates of interest as such a proposition reducing overall lending risk of the lenders and gives them the impression that borrower has the financial capacity to repay the loan on time.
Better Chance of Loan Approval
By agreeing to pay a substantial amount of down payment, borrower has much better chances of getting a faster approval despite credit score being average or less than perfect. One can pay down payment in cash or by vehicle trade-in.
Lower Monthly Payments
Higher the amount of down payment, lower will be the monthly car instalment meaning less money will get spent on interests all along the life of the car loan. In addition, there are less chances of a monthly payment default.
A sizable down payment can enable retaining equity in the car during the first year. This is because car values depreciate fast and in the first year alone, there could be over 20% depreciation which can get balanced by 20% down payment.
Keep Debt Level Manageable
Currently, car loan interest rates are at record lows and therefore, it is easier to qualify for sustainable interest rates even with low credit score. This only implies that lot of money can be saved on interest payments.
Know More About The Reasons For Paying Down Payment To Buy a Car
To secure the lowest interest rate on a car loan, the best strategy for a borrower is to pay a 20% down payment provided he can afford it. Such a move can guarantee an array of benefits to him including building credit rating quickly within a fixed frame of time. However, one must only ensure that monthly car instalments are being paid regularly and on time.