Looking to own your new car? Getting your car financed creates an easy way for you to own it rather than paying for it in a lump sum.
Most car loans require a down payment of about 20% for new vehicles, and 10% for older models. Securing a down payment not only reduces the overall cost of your loan but it also provides you with a couple more helpful benefits such as the following:
Putting more money on the down payment significantly reduces the amount of your loan.
The lower the amount of loan equals lower monthly payments. And thus, you’ll also pay a lower interest amount throughout the duration of your loan.
The loan-to-value ratio is another reason why it’s great to put in a down payment for the car you’re buying. It’s another factor that affects your loan approval. Having a down payment reduces the risk to the lender, which in turn positively impacts the interest rate.
Cars lose value as the years go by. Lenders need some form of assurance that they at least can get some of their money back in case you don’t repay the loan and they have to repossess and sell the car. Putting in a down payment establishes your creditworthiness to the lender, and this helps especially if you have lower credit scores.
Lower Monthly Payments
Buying a vehicle with a down payment reduces the amount you need to borrow, therefore decreasing your loan’s monthly payment amount. Compared to the cost of a car with no down payment, you can save hundreds of dollars over time by paying some money up front.
As with any commercial item that gets old, a car’s value depreciates as soon as you drive it off the lot. New cars have a faster rate of depreciation and lose their value more in their first year. As a rule of thumb, new cars lose 20-25% of their value in the first year and 15% more for every year that follows.
Making a substantial downpayment helps you pay off your loan quickly before it depreciates in value too much. If you’re considering selling or trading your car down the road, think about how much value you can get back for it and if it will be enough to pay off the remainder of what you owe on your loan. Putting in that downpayment saves you from being in an upside down situation in your loan, owing more than what your vehicle is worth over time.
Get Qualified for Special Offers
Another reason why make a car down payment? Special Offers. Time and again, car dealers make special promos offering low rates and other incentives.
Depending on the terms and conditions offered, some offers require a higher down payment. Be sure to read through the fine print and ask about the down payment requirements before taking the leap. Also ask questions if any details in the program are unclear.
If for any reason you can’t make a down payment, you may still apply for a car loan and protect your finances by purchasing car insurance. This goes both ways as it also boosts the lender’s confidence to finance the car.
Insurance Companies and Car dealerships now offer Gap Insurance, which assures them that the remainder of the loan will get paid in the event of a total loss. Other types of insurance coverage can also be added on top of your existing insurance plan, such as the New Car Replacement Coverage, which replaces your car with the same make and model if the vehicle is totaled.
You may also purchase a less expensive vehicle if you can’t afford to make a down payment. Or find someone with a good credit standing to co-sign the responsibility for the loan repayment. This puts you in a better position to get qualified for the car loan.
Are you looking to purchase your next car from a used dealership that’s dependable, flexible, and honest? Visit Carfect or call (224) 836-4767 today!