If you are thinking about buying a used car or buying a brand new vehicle, you may want to consider a compromise and buy a used rental car. Used rental cars are typically less than a year old and usually have low mileage. The same car purchased, when purchased new, costs thousands of dollars more. On the other hand, used rental car... Read more
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There are two questions that are frequently asked about a down payment on a car:
"Will I have to come up with a down payment," and/or "What will that amount be?" Let's start with the first question. Whether or not you will have to come up with a down payment depends on your credit history. If your credit history is good, chances are that you won't have to make a down payment. If your credit isn't so good, they will most likely require a down payment. Why do auto lenders want a down payment? The reasons are this: 1. This shows them that you are committed. A big down payment such as a few thousand dollars demonstrates that you are invested in the loan. People are much less likely to default on a loan from the bank if they have made a big down payment. If you have past credit issues, a bank will want you to prove your commitment. Another reason they may want you to prove your commitment with a down payment is if you are a first-time borrower and have not yet established a credit history. 2. A down payment reduces their risk. When a borrower defaults on an auto loan, it's usually a pretty big loss for the lender. If your credit history makes the bank think that you might default, they're going to ask for a down-payment (assuming they approve the loan in the first place). But if your credit history is clean, theres no reason to worry about you defaulting and you don't need a down payment. The bank will look for ten percent down as a minimum if you have no credit or bad credit. They oftentimes require considerably more, twenty to thirty percent down. If you are a first-time buyer, there are some programs available for the purchase of new vehicles. Toyota and Ford, for example, have programs like these in which you can put little or no money down. You get a new vehicle with very little down just as long as you meet their requirements. The answer to the second question, "How much should I put down," is: As little as possible! Cars are depreciating assets. If you can do anything else with your down payment to help you financially, by all means do it. If instead of putting your money down on a car, you can use your cash to buy a house or pay off a high-interest debt (such as your credit cards), you should do those things. You should also have an emergency cash fund so that if you get sick or laid off, you have enough cash to make your payments. There are usually better ways to spend money than using it for a car loan down payment. You shouldn't put down as little as possible, however, if doing so means lowering the interest rate on your car loan. If a bigger down payment will get you a 5.99% interest rate instead of 7.99%, you should do it if you can. Sometimes $500-$1,000 is all it takes to get a better interest rate. In the long run, lowering your interest rate will save you a good amount of money on finance charges.
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