Picking the type of vehicle that's right for you is an important decision. Perhaps even more important, though, is how you'll come up with the funds to pay for it. Can you buy it with no down payment? Should you? The size of your down payment depends on the situation in which you are getting your car.
20% is no longer the benchmark
For decades, the advice from financial experts, auto dealerships, and even your parents was to put down 20% on any car purchase. But times have changed and the prices of cars have gone up considerably. For many people, 20% is not feasible. As a result, experts now recommend around 12% as a good down payment amount.
Can a down payment be higher than this? Of course it can. People who have the means to put down the old standard of 20% are welcome and often encouraged to do so. The benefits of such a large up-front payment include smaller monthly payments and less money paid in interest throughout the entire course of the loan. A larger down payment also increases your chances of getting approved for a loan, as lenders see this as an example of fiscal responsibility. As a result, the interest rate on that loan will undoubtedly be lower as well.
Conversely, a smaller down payment will require less (or even nothing) up front in exchange for larger monthly payments. This can have advantages if you do not have large sums of money saved up but need a vehicle immediately. Interest rates for zero-down financing vary based on your credit score with the best rates reserved for those with the highest scores.
Putting zero down may sound attractive, but remember that the unavoidable registration fees and taxes will get bundled into the financed amount. This can result in you having negative equity from day one. If possible, pay these fees up front even if you do not put down anything towards the actual vehicle. You may also want to consider gap insurance to protect you in case an accident occurs soon after your purchase. It will prevent you from having to pay off a loan that is worth more than the vehicle's actual value.
To learn more about your down payment and other financing options, contact Mike Duman Auto Superstore today.