- By putting a down payment on a vehicle, you are establishing a strong willingness to repay. A down payment creates immediate ownership in the vehicle and communicates to the lender your intention to uphold the lending agreement. If you pay off the vehicle with the same lender, you will establish good report with the lender and it will be more willing to lend to you in the future. This acquisition will also be reflected on your credit score.
- Since you are paying upfront for a portion of the vehicle, you are also lowering your liability to the lender. For instance, if you purchased a $10,000 vehicle with a $2,000 down payment, the lender will then be financing only 80% of the vehicle, or $8,000, instead of 100%, or $10,000. This could also mean that the amount financed is less than the car is worth, so when you decide to sell or trade in your vehicle at a later date it is more likely that you will owe less on the vehicle than what you could receive for selling it. This could translate into an immediate profit or the ability to not be upside down for a trade-in. Upside down for a trade-in means that what the dealership will give you for your car is less than what you owe on the car--therefore, the new vehicle purchase will have the difference in the trade rolled into the financed amount.
- With a down payment, you will be able to achieve a lower monthly payment on the finance amount. A smaller financed amount also translates into a lower overall finance charge. The amount of the down payment could save more money in the long run regarding finance charges and monthly car payments, although in some instances you may break even. If you have an established credit history and a high enough credit score, you may be able to opt out of a down payment. If you also have money for a down payment, calculate your options to see how you can spend less money in the long run. Use the links below to calculate your options.
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