If you are looking to finance a vehicle, there’s a significant chance that a lender will require some form of down payment for a car. The amount you put towards a down payment will affect your monthly payment and how much money you will owe overall.
Here are some of the pros and cons when it comes to a larger down payment.
Pros of a Large Down Payment
Smaller Loan – When you put up a large down payment, you end up borrowing less. When you reduce the amount you need to be financed, you are saving yourself money in the future.
Lower Payments – Placing a large down payment is a great way to reduce the size of your monthly payments. The smaller your loan the smaller the payments
Less Interest – With a larger down payment, you have less monthly payments to make and in smaller amounts. This will drastically reduce the amount of interest you end up paying for the loan.
Shorter Loan Terms – If you are able to place a larger down payment, you can make your loan term much shorter. A shorter term will allow you to save on interest. Typically, a shorter loan term could mean higher payments, but not if you left a large enough down payment.
Help Get Approved – Although a large down payment is not a “sure-fire” way to get approved for an auto loan, it can help. A large down payment shows a lender you are serious and committed top repaying the loan.
Cons of a Large Down Payment
Reduced Savings – A larger down payment requires cash. When you put money towards a down payment, you will have to reduce your savings. Make sure you can afford the car prior to buying.
No Lower Interest – If you’re a car buyer with less than ideal credit, it’s important to note that a larger down payment will not help you get a lower interest rate. In rare cases, however, this could be possible.
If you are looking to buy a new car but are in need of financing, CrediReady can help. Our nationwide network of trusted dealers and verified lenders work with buyers in all credit situations. Take a moment to fill out our free no-obligation loan inquiry form and start shopping for your dream car today!