If you're thinking about buying a used car and don't plan on paying for it in full, then you're probably in the process of saving up for a down payment. A down payment benefits you in numerous ways; for starters, it lessens the amount you need to borrow, which can shorten the term of your loan and reduce your monthly payments. Furthermore, a down payment provides some buffer against depreciation in your car's value. So, how can you know what type of down payment is right for you?
What's Your Credit Like?
Start by considering your credit score. This will have a major impact on what kind of an auto loan you'll be able to get approved for. If you're not sure of your credit score, you can obtain a free copy from any of the major reporting bureaus. If you have a higher credit score, you may be able to get approved for a used car loan with no down payment required. If you have a less-than-ideal credit score, however, then you may want to save up for a larger down payment so that you don't have to request as much financing.
Do You Have a Trade?
Another consideration to keep in mind when determining your appropriate down payment amount is whether or not you have a car to trade in. In so, then any trade-in you make will be automatically deducted from the total cost of your car, much like the down payment. If the car you're trading in is worth 10% of your new (used) car's value, then you may not need to make any additional down payment. If you're only going to get a couple hundred dollars for your trade or you don't have a trade, however, then you may need to make a larger up-front payment
What Rebates Are Available?
Finally, consider any rebates or incentives that the used car dealership may be offering you. Some dealerships will offer a certain amount back on your purchase, which is actually just an amount deducted from your total sale price. Rebates and incentives may reduce your need for a down payment, but if you're financially able, you should still make one. After all, this will reduce the total amount you owe on your car, which will also decrease the amount you pay in interest over time.
Ultimately, you and your dealer will need to work out a down payment option that works best for you. In the meantime, however, asking yourself these questions should get you on the right track.Share