It doesn’t matter if you’re buying a new or used car, you’ll have the opportunity to put money down.
In short, the more money you put down, the less money you’re borrowing. And the less money you borrow, the less your monthly payment. Furthermore, a down payment will save you on interest over the term of your car loan.
But that doesn’t answer the million dollar question: should you put money down when buying a car?
It’s easier to answer this question when buying a house, since you’re generally required to make a down payment by your lender. This isn’t typically the case when buying a car.
Here are some things to think about as attempt to answer this question:
1. Available Cash
It’s one thing to dream about making a big down payment, but another thing entirely to do so.
Review your finances to better understand how much available cash you have for a down payment. This will help you decide on the perfect amount (if any at all).
2. The Amount of Your Loan
If you’re taking out a $50,000 car loan, you may want to make a sizeable down payment so you feel better about what you’re taking on.
Conversely, with a more affordable car, you may not feel as much pressure if you decide against a down payment.
3. The Monthly Payment
What’s the monthly payment without a down payment? What’s the monthly payment with five percent down? How about 10 or 15 percent? What about 25 percent?
In simple terms, the more money you put down the lower your monthly payment. So, if that’s important to you from a budgeting perspective, consider how much you comfortably afford to put down.
4. Equity in the Vehicle
This is a big deal because you don’t want to find yourself underwater. This means that you owe more on your loan than what your vehicle is worth.
By making a down payment, you reduce the likelihood of this happening in the near future.
Final Thoughts on Making a Car Loan Down Payment
In most cases, you’re not obligated to make a down payment when buying a car. However, there are many benefits of doing so.
Before you begin your search for a new vehicle, consider how much, if any, money you want to put down.
When was the last time you purchased a vehicle? How much money did you put down? Were you happy with your decision in the long run?