Buying a new car is an exciting venture. If you’re looking to finance a new car, the experience can quickly become overwhelming. If you want to know how much money you should put down on a car, you’ll need to avoid some common mistakes and understand the factors that will ultimately determine how much you pay.
Many car buyers purchase the wrong car for their needs. This can be a result of personal tastes, the desire for status, or simply not considering their lifestyle needs. Choosing a used car, that has already depreciated in value and will therefore cost less, can save you money.
One of the biggest mistakes car buyers make is overlooking the full cost of their vehicle. Before you decide how much money to put down, you need to know exactly how much the car will cost you in the long-term. Avoid focusing too much on monthly payments, and instead take interest rates and finance structures into consideration.
This will give you a clear understanding of what your down payment should be, and avoiding these common mistakes will reduce the amount you’ll need to put down.
Factors that Influence Down Payment
Many factors determine how much money you need to put down on a car. A good credit history enables you to put down less and receive a lower interest rate on your loan.
Consider how much you have allocated in your savings for a down payment. Although using as much of your funds as possible for a down payment lowers your remaining balance and monthly payments, you need to consider your other financial obligations to ensure that you make the right decision.
Trading in your current vehicle is a great way to lower the down payment for your new car. Depending on your circumstances, your car may have equity that allows you to apply it as part of your down payment.
So How Much Should You Put Down?
Once you’ve considered the previous factors, and have done the research required to help you determine what you can afford, you can begin to decide how much to put down.
Many experts recommend a limit of 20% of your monthly take-home income as your target for monthly payments. This will give you an estimate to start off with. As mentioned, the interest rate and length of your loan term are important factors that will influence the down payment.
Knowing how much to put down on a car can be a daunting task. By understanding the factors that influence total cost, and the financing structures available to you, you can easily determine how much to put down. This will help save you money, and quickly put you in the car that’s right for you.