Deciding on the Best Car Down Payment for You
When you're in the market to buy a new car, you might think only about the total cost of the vehicle. After all, that's what determines whether or not you can afford it, right? However, this approach can be a bit shortsighted. In reality, you need to think about how much you're willing to pay in the form of a down payment on this car. This amount will determine how much car you can actually afford.
You see, the down payment amount you select will determine how much you pay monthly. This number has a lot more to do with how much you can afford and what fits into your budget than the total cost of the car.
While the typical down payment amount is 20 percent of the total cost of the car, more and more people are opting for lower down payments, presumably so they can get into new vehicles faster. However, this can raise several problems as it increases the amount you have to pay monthly on the car and extends the length of time you'll be paying it off.
Now, car interest rates are very low at the moment, which makes it even more tempting to just settle for a lower down payment. Even so, this isn't a good idea. Why, you may be wondering? While you may not have to pay as much money monthly or watch your cash go to paying as much interest, the longer amount of time you'll have to spend paying off the car could hurt you in the long run. A low down payment makes it very likely that you could wind up still paying the car off even when it's no longer worth the amount you purchased it for. This is call depreciation and it can make selling your car or trading it in next to impossible because it won't have a substantial enough value.
No one wants to owe more on a car than what it's actually worth. That's just not a good situation to be in. That's why it might be a good idea to resist the temptation of a low down payment and go ahead and pay the standard 20 to 25 percent. You'll have lower monthly payments, pay your car off faster, and increase the likelihood of the car still having some value by the time you fully own the vehicle.