A lot of auto dealerships like to advertise zero-down specials where you don’t have to put anything down to purchase a car. While it may be tempting to go this route, there are actually a lot of good reasons to put money down when buying a vehicle. Here are just a few things to think about before you go hunting for your next car, truck or SUV.
The Benefits of a Down Payment
It’s not always easy to cough up a substantial amount of money. Even when you have it, which many people don’t right away, it can be difficult to part with a large chunk of money. However, for vehicle purchases it can make a lot of sense. Here are a few reasons why:
- Lower monthly payment – Cars cost a lot, and typically you have to finance, so you pay a monthly payment until the vehicle is paid in full. That monthly amount needs to fit within your budget, which is why a down payment can help. It can lower the cost enough to get you an affordable monthly payment. Hint: It’s also essential to factor in other monthly expenses for vehicles, including gas, insurance, maintenance and any savings for emergencies when creating your budget. Monthly payments are the only cost of owning a car.
- Save money – One part of financing a vehicle is interest. When you put money down, you finance less—and that means you pay less for interest, saving money in the long run.
- Have equity – No one wants an upside-down loan, and putting money down can help you avoid that. It also allows you to have equity in your vehicle as long as the value stays above what you owe.
- Shorter loan term – Putting money down on a vehicle well within your budget may mean you can finance for a shorter loan term. Imagine the relief of paying off your loan quicker. Before you know it, there will be no monthly payments.
- Potential of a reduced interest rate – For some dealerships, someone who is financially savvy enough to put down a bigger down payment may also be someone they are more willing to consider less risky. Less risky equates to lower interest rates in the lending world.
- A better vehicle – Putting more down may be the way to get you into a better vehicle. By putting money down, you can still have a monthly payment within your range.
How Much Should You Put Down on a Used Car?
The solution isn’t simple for down payments. In the end, the best answer is however much you can afford to put down. While some lenders will require 10% down, the majority really like to see 20% down. For bad-credit dealerships, you can often get away with less down, but you should always try to come up with as much as you can without breaking the bank or putting your finances in jepoardy.
4 Simple Tips for Finding a Used Car Down Payment
Not everyone has extra cash on hand, but if you are determined to find money to put down on a vehicle, here are four tips to help:
- Use your tax refund – If you are lucky enough to get money back after filing taxes, it may be the perfect time to go car shopping.
- Take a second job or extra shifts temporarily – There is more than enough work to be found if you want it, and if you are motivated enough, you can work extra for a month or two and earn enough for a decent down payment. Just remember to save that extra cash and not spend it because you have it.
- Sell some stuff – A lot of people in America have clutter and unused items. Create a win-win situation by going through your home, organizing and selling off unwanted or unneeded stuff. You may make more than you think if you are willing to let go of high ticket items you never or rarely use.
- Work odd or online jobs – There are jobs online and neighborhood gigs that can help you earn a little cash. Do a little research and find out what skills you have. Are you good with dogs, kids or writing? You’d be surprised how much side income is out there for the taking.
A down payment can be a really good thing. If you are about to start shopping for a car, seriously think about putting cash down toward your purchase.
