Auto Loan Down Payment Guide: How Much You Save?

The higher the auto loan down payment that a customer makes, the lower the monthly rate the customer will need to pay.  The actual benefits obtained by using a high auto loan payment depend on a few specific factors. 

Depreciation

Cars depreciate when they are driven off of the lot.  That means that the amount of money that a car was worth decreases as soon as someone buys it.  If a person makes a low down payment on the car, and still owes a high percentage of money to pay off the purchase, sometimes the initial depreciation of the car results in the person owing more money than the car is worth.  In order to avoid being in a situation where the value of the car is less than the money you owe on your car loan, increase the down payment to at least 20% of the car’s initial worth. 

Good Faith

A higher auto loan down payment also saves a person the hassle of not being able to receive a loan at all.  Making a higher down payment, especially if a borrower has bad credit, shows that the borrower can and will make the promised payments. 

Actual Calculation

The Internet is a great source that can be used to determine how much a borrower will actually save, monetarily, by changing his or her auto loan down payment.  Different auto loan calculators can be found on many websites, but they all require the same information.  By analyzing the inputs necessary to calculate monthly payments due, it is easy to see what a large down payment will do for a borrower.  A higher down payment reduces interest rates because the lender realizes that a person is serious about buying the car.  A reduction in interest rates equals a reduction in monthly payments.  A higher down payments means that a borrower owes less, in total, on the car.  Obviously if a borrower owes less over a lifetime then he or she owes less per month.


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