Two things are essential when purchasing a new vehicle: the vehicle type and the down payment amount. This payment is the amount you already have to pay off the vehicle. The remaining amount becomes a loan that goes into a payment schedule and accumulates interest. The goal is to put a large sum down since doing so will affect the interest rate, monthly payment, life of the loan, and loan eligibility.
Though there are general recommendations on how much your down payment should be, deciding on the right amount will depend on your financial situation and the vehicle you purchase. Below, we share three tips for choosing the correct down payment to get the best value from your new car.
Three essential tips to optimize your down payment
Put down a large amount of money
The recommended amount to save for a new car is around 20% of its purchase price. For a used car, that should be at least 10%. If you can put more down, that’s best. Putting a large amount of money down reduces the life of the car loan and allows you to not only pay off the loan faster but save money by not having to pay interest for too long. Since cars depreciate, you’ll get more value from your vehicle with it paid off sooner.
Go over the upside-down amount
Generally, cars lose around 20% of their value within the first year. If your down payment is below 20%, you risk owing more than it will be worth when you sell or trade-in. So, if you owe on the loan when you give the car away, you may have to pay the difference even though you no longer have the vehicle. To avoid this financial deficit, put over 20% down when you purchase the car to offset the depreciated value.
Wait and save money for a new vehicle
If you’re not in dire need of a new car now, it may benefit you to wait and save money to put a large amount of it down when you purchase a vehicle. During this waiting time, you can cut or reduce expenses, funneling the savings into a different account just for the new car. Taking extra work and creating a budget are other ways to build money quickly.
Where to get the most value from your down payment
Ultimately, your best option is to work with a trusted dealership that can work with you to optimize your down payment and car loan. At Mike Duman Auto Superstore, we do just that, offering financing for all credit types. Not only are our used cars top of the line and affordable, but we approve most buyers for an auto loan that fits their unique financial situation.