The Benefits of Putting a Down Payment on a Car

When buying a car, most people already have a general idea of how much they’re willing to spend before heading to the dealership. However, fewer people know how much they want to spend on a down payment or if they even plan on making one at all.

For many, the down payment is often one of the most overlooked parts of the car buying experience — but this shouldn’t be the case. There are several benefits of putting a down payment on a car, including lower monthly payments, a shorter loan term, less accumulated interest, and so on. Continue reading to learn more! 

Why You Should Consider Putting a Down Payment on a Car

1. Your Monthly Payments Will Be Lower

One of the top benefits of putting a down payment on a car is reducing your monthly payments. Lowering the amount you owe on your vehicle each month can be a very appealing factor, especially for budget-conscious individuals.

For example, let’s say you purchase a vehicle with no money down. With a five-year loan of $25,000 at a 4% annual percentage rate (APR), your monthly payments would be $460. Meanwhile, if you paid $5,000 upfront, your monthly payment would drop to $368. This is a sizable reduction, saving you almost $100 in monthly payments and a total of $1,104 per year.

Click here to use our payment calculator and discover how various factors like down payment, interest rate, and length of a loan term will affect your monthly payments.

2. You’ll Pay Less Interest

Just as putting a down payment on a car can save you money each month, it can also reduce the amount of interest you end up paying on your vehicle. Making a down payment will lower the amount you must borrow from the bank. Rather than stretching your loan over a more extended period to reduce monthly costs, you may be able to choose a shorter loan term and pay it off quickly. As a result, the accumulated interest throughout your loan term will also be reduced. Interest can quickly add up, and doing this will help ensure that you’re paying “less” money for your car in the long run. 

3. You’ll Have a Greater Chance of Getting Approved

Your credit score goes a long way in determining whether or not a lender will approve you for an auto loan. Unfortunately, however, not everyone has a strong credit score. This can result in individuals being turned down for loans because the bank doesn’t view them as “creditworthy.” 

For those with less-than-ideal credit scores, putting money down can help increase your chances of getting approved for a loan. In addition to reducing the amount of money the bank has to lend, a down payment also shows a financial commitment on your end. By showing lenders that you are serious and can be trusted, they will be more likely to approve you for the loan.

Related: How to Get a Car Loan With Bad Credit

4. You Can Offset Depreciation

It’s no secret that cars depreciate rather quickly. In fact, a car loses approximately 20% of its original value within the first year alone. Failing to make a substantial down payment could leave you upside down on your loan sooner rather than later. Otherwise known as having negative equity, being upside down occurs when you owe more on the loan than your car is worth. While it isn’t impossible, having negative equity can make it difficult to sell or trade-in your vehicle down the road.

Learn More: How to Trade in a Car With an Existing Loan 

How Much Money Should You Put Down on a Car?

Now that you know all of the reasons to make a down payment, you may be wondering how much you should consider putting down. While the decision is ultimately up to you and what you can afford, experts typically suggest paying off 20% of the car’s purchase price upfront. However, the recommended percentage you should put down can vary depending on other factors like price, interest rate, and market conditions.

Of course, you don’t want to burden yourself financially and stretch yourself too thin just for the sake of putting down 20%. If you have a substantial amount of money in your savings account, it may make sense to put down a larger payment. However, if you don’t have the extra funds, making a smaller down payment might be a better choice for you. 

Buying Your Next Car at Burlington Kia

Putting a down payment on a car has many incredible benefits, including lower monthly payments, less interest, offsetting depreciation, and increasing your chances of getting approved for a loan. Ultimately, it is up to you to determine how much of a down payment you will make.

Whether you decide on a down payment of 10%, 20%, or none at all, we’ll make sure your road to getting a new car is as smooth as possible. Click the button below to contact our dealership and get started!