DOWN PAYMENT

What Is a Down Payment? 

 A down payment is the upfront amount of  money you pay when purchasing a vehicle. The rest is typically financed through a loan or lease. 

Where It Comes From: 

∙ Savings 

∙ Trade-ins (for cars)

What to Know About Down Payments When Buying:

A down payment is the initial amount of money you pay upfront when purchasing a big-ticket  item, like a car or home, and the rest is typically financed through a loan.

Key Points About Down Payments: 

What It Does: 

∙ Reduces the loan amount you need. 

∙ Shows lenders you're financially responsible. 

∙ Can lower your interest rate or monthly payments. 

Purchase Type Typical Down Payment 

Car 10% – 20% of price 

  Pros of a Bigger Down Payment: 

∙ Lower loan balance. 

∙ Smaller monthly payments. 

∙ Less interest over time. 

∙ Better loan terms. 

  Typical Down Payment Amounts: 

∙ New Cars: Around 10% to 20% of the purchase price. 

∙ Used Cars: As little as 10%, but more is better to avoid high interest rates. ∙ Some lenders may require a minimum (e.g., $1,000 or 10%, whichever is higher). 

Why Make a Larger Down Payment? 

1. Lower Monthly Payments: You borrow less, so payments are smaller.

2. Better Loan Terms: Larger down payments can lead to lower interest rates.

3. Less Risk of Negative Equity: Your car depreciates less than the loan amount owed.

4. Higher Approval Odds: Improves chances of getting approved, especially with bad credit.

⚖ Cash vs. Trade-In: 

∙ You can use cash, a trade-in vehicle, or a combination as your down payment. ∙ Be sure to know the trade-in value of your car before negotiating. 

Zero-Down Offers: Good or Bad? 

∙ Pros: No upfront cash needed. 

∙ Cons: Higher monthly payments, more interest, and risk of being "upside down" on your loan  (owing more than the car is worth). 

How Much Should You Put Down? 

∙ Rule of thumb: 20% for new cars, 10% for used cars. 

∙ Example: On a $30,000 new car, a 20% down payment = $6,000. 

Tips Before You Decide: 

∙ Check your credit score—better scores mean better financing options. 

∙ Set a budget—don’t overextend your finances. 

∙ Factor in other costs: taxes, fees, insurance, and maintenance.