Tips for Down Payments on Cars
When you’re looking to finance a car, one of the first things you need to decide is whether or not you want to make a down payment. It’s become very common for dealerships to offer 0 down options, but it’s important to critically think about if that’s truly something you want to take advantage of. We typically recommend putting money down for a number of reasons, and in this article we’re going to give you some tips for getting a down payment on a car.
Things to Consider When Buying a Car
The Sticker Price. This is the total price of the vehicle if you we’re to buy it up front and in full.
How much are you financing? How much money do you need for financing? If the car is $20,000 and you make a down payment of $5,000, you need a $15,000 loan, plus interest.
How long of a loan term do you need? The longer the loan term, the less your monthly payment will be, but you will pay more in interest.
What is the Annual Percentage Rate (APR)? What is the cost of borrowing over a year?
Do you have good credit? The better your credit, the better the financing terms you qualify for. If you can wait to buy a car in order to improve your credit score, you should.
How much can you afford to pay monthly? You need to agree to a car loan where you can make your monthly payments feasible.
Issues With Zero Down Options
- It may be harder to negotiate a lower price on the car if you’re opting for a zero-down option.
- Zero down car loans usually results in a higher interest rate, so in the end, you may actually end up paying more for the car.
- A zero-down car loan will result in bigger monthly payments since you’re asking the lender for a bigger loan.
- If you have bad credit, you probably won’t qualify for a zero-down car loan.
Tips to Getting a Down Payment on a Car
1. Make Your Savings Account Deposits Automatic
Having part of your income go directly to your savings account without you having to remember and actively transfer the money can go a long way. So for every paycheque you get, allocate a fraction of it to go towards your savings account which you can use as a down payment on a car. This way, the money is never in your chequing account so it won’t feel like as much of a loss, plus since it’s automatic, you’ll probably forget about it!
2. Evaluate Where You Can Cut Down on Spending
We all have guilty pleasures that we don’t really need but cost us a lot of money over time. Whether you have a golf addiction or enjoy getting takeout a few times a week, consider cutting back and using the savings towards a down payment. Every little bit counts and you’d be surprised how much you can save annually by eating out only once every two weeks instead of once a week.
3. Trade-In Your Current Vehicle
Don’t be mistaken! Trading in your current vehicle is a great way to pad up your down payment. Even if your car is going directly to a scrap yard, you’re still likely to get $300-$500. Every little bit counts and the more you can put down, the less your monthly payment will be!
Looking to Buy a Car?
If you’re ready to buy a car, check out our rates page to see the current rates of lenders across the country. Once you’ve seen our rates page, check out our car loan calculator to see a rough estimate of what your monthly payments will be!