10 reasons to make a down payment on your next car loan
Who wants to pay a deposit on a car loan? The answer is nobody. Anybody wants shell out a lot of money up front to get a car they need. But you should. Here are 10 reasons why you want to reconsider paying a down payment on your next vehicle.
10. Reduces the amount borrowed
Whichever way you slice it, bringing your own money up front is a solid decision when financing a car. The amount you bring as a deposit is known as the “skin in the game”. In many cases, such as bad credit auto loans, down payments are required. The more you bring to the table, the less you ultimately have to borrow from a lender.
9. Pay less in interest charges
When you borrow less, you repay less. It may seem like a no-brainer, but borrowing money isn’t always free – you’re often charged a certain percentage (interest rate), so you might pay back a little or a lot more than you borrow . The better your credit score, the lower the interest rate you typically qualify for, so if you have bad credit, being ready with a down payment can save you even more.
8. Your monthly loan payment could be lower
You may be seeing a theme as we move on to the eighth reason to make a down payment on your next auto loan – continuing our downward trend. You guessed it, more good news! Not only does a down payment mean borrowing and paying back less money overall, it could also mean less money coming out of your pocket month over month.
7. May qualify for a different loan term
A different loan term can also impact the amount of money you spend on loan repayment each month. The longer you extend your loan, the lower your monthly payments. If you’re a borrower with bad credit, extending your loan term too long means paying more interest.
Since lenders want you to be able to successfully complete your loan in a timely manner, they sometimes cap the loan term you are allowed or don’t offer you as short a loan term as you want. Down payments can be an important bargaining chip when it comes to determining the term of your loan.
6. Can eliminate the need for a co-signer
In some cases, borrowers with bad credit must have a co-signer in order to qualify for an auto loan. A co-signer acts as a backup payer in case you are unable to make your payments. They also lend you their good credit rating to help you qualify for financing. Sometimes, if you can’t find a co-signer to meet this requirement, making a larger down payment lowers the risk for the lender enough so it can be a ticket to go it alone.
5. Can open more vehicle choices
If you bring a large sum of money as a down payment but don’t choose to borrow less, you may be able to increase the number of vehicles you can choose from. When financing a car with low credit, you must first qualify for financing and then choose a vehicle that matches your approved monthly payment amount. If your down payment is large, you can usually choose from cars that cost a bit more.
4. Could qualify you for special programs
Another benefit of down payments is that putting down a certain amount of money can help you qualify for special financing programs in some cases. Not everyone is eligible for financing programs and incentives, so it’s important that you talk to a dealer about all the details and understand how much down payment you need to qualify before you buy. accept a contract.
3. Compensatory depreciation of advances
Vehicles depreciate, which means they lose value over time and with use. Typically, new cars lose about 20% of their value in the first year of ownership, while all cars lose about 15% of their value each year. If you buy a vehicle without making a large down payment, you could end up owing more on your car than it’s worth.
This is called being upside down or having negative equity. This can make it difficult to sell or trade in a vehicle and launch you into a negative equity cycle if you’re not careful. A down payment of between 10% and 20% is generally recommended to offset the depreciation, depending on your situation and the car you are financing.
2. Cash may not be necessary
Down payments may be required in some cases, but they are not just for the good of the lender. The bottom line is that making a large down payment on a car loan can save you money when you need to finance a vehicle, and they might not have to be cash. You can also use the trade-in value of your current car to meet a lender’s down payment requirements, or add it to the amount you’ve already saved to make an even bigger difference in saving money. !
1. Can Help Auto Loan Approval Scores
As mentioned earlier, down payments are generally required for borrowers with less than perfect credit. This usually means depositing at least $1,000 or 10% of the sale price of the vehicle. However, the more money you can put down, the better your chances of getting a car loan.
To increase your chances even further, make sure you’re working with the right type of lender for your situation. Not all lenders can work with borrowers who have bad credit, and not all dealers have lenders who can. AT Auto Express Credit, We’re here for you ! Simply complete our quick and free auto loan application form to connect you to a dealership in your area who has signed up with lenders to help consumers in credit difficulty.