Buying a car can be intimidating, especially if you’re a first time buyer or don’t have the best credit score. Making a down payment can make the difference between getting a loan and driving off the lot in your old car. Since it’s so important, how much should your down payment be and why?
On a new car, the down payment plays quite a few roles. First, it can lower your annual percentage interest rate and increase the likelihood you’ll get loan offers altogether. The down payment can often offset the depreciation the new car will go through as well. When buying, making a down payment of at least 10% of the new car’s purchase price is a good idea.
When leasing, the down payment amount is often predetermined and non-negotiable. Instead of paying more money on the down payment, lease customers should stick to the predetermined amount and make the monthly payments from there.
As for used cars, putting down 10% or more is advisable. Since used cars are generally cheaper than new cars, putting more than 10% is suggested and makes it much more likely lenders will offer lower interest rates. Used cars don’t depreciate as quickly so down payments around 10% are usually more than enough for most lenders.
Always remember that the larger the down payment, the shorter the loan term and lower the monthly payments!