The Lowdown on New Car Loan Down Payments

Pen writing a check
 

Bigger is usually better when it comes to a new car down payment

Buying a new car but can't decide how much money you should spend for a down payment? If you're like most car buyers, you probably don't know. In this section, we give you the lowdown on new car down payments, to help you decide.
 

Let your lender know you're a serious new car buyer

For the most part, the larger your new car down payment, the more serious you are as a borrower in the eyes of a lender — a borrower who has the financial means to make a sizeable upfront payment, someone who is willing to make a larger financial commitment to reduce the amount of money borrowed, and finally, someone who is committed to repaying the loan over its lifetime. As a result, the bigger your down payment, the lower your interest rate will most likely be. These savings can add up, since even a half percentage point drop in interest can noticeably reduce your monthly car payment costs.
 

Steer clear of upside down car loans

At some point, many of us will owe more for our cars than they're actually worth (known as being 'upside down' in a car loan). For example, if you put 10 percent down on a car that depreciates an average of 20 to 25 percent in the first year alone, you're upside down, if only for a short while. Unfortunately, some car buyers can be upside down for two, three, even four years into their auto loan. When it comes to buying a new car, your best bet is to make a larger down payment to reduce the amount of time you owe more money for your car than it's actually worth.
 

Spend less money in car payments

It goes without saying the more money you spend for a down payment, the less you'll ultimately borrow. As a result, your monthly car payment expense will be reduced. It's good practice for car buyers to keep in mind the drain an auto loan payment can have on a monthly household budget — especially when it comes to longer term auto loans — and to use this knowledge as an incentive to make a larger down payment.
 

If you can swing it, opt for 20 percent down

As a general rule, it's best to put 20 percent down — or more — when buying a new car, if you can swing it. Not only can you qualify for a better interest rate while reducing the cost of your monthly car payments in the process, you help offset the significant depreciation hit you realize the minute you drive the car off the lot, which, in turn, helps you reduce the amount of time you owe more money than it's worth. If you can't afford 20 percent, put the maximum amount down you can afford and whenever possible, opt for the shortest loan term that fits your budget.
 

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