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Thursday, December 7, 2017

How much of a down payment should you put down for your new or used car?

If you are in the market for a new or used car, the ideal situation is to pay cash. Unfortunately, not many people have the disposable income to purchase a car outright. That means that most car buyers have to deal with financing their vehicle. The key to keeping your equity high and your financial head above water is to finance as little as possible and to have a set budget before you go shopping. You will also want to stay within that budget, no matter what options entice you to extend it.

The best way to keep your finance costs low and to be approved for a loan is to have money to put towards the purchase. Most lenders see a down payment as you committing to the ownership of the car. Not only does it mean that they have less risk in lending, but they also see that you stand to lose something if you should fail to make payments.

Should you trade-in your car?

Trading in your old car is an excellent way to provide a down payment for a car. People often think that selling their car privately will get them more. But the reality is that the process of selling your used car can be arduous, and if you do sell it you will end up paying a whole lot in taxes. There are also times when Surrey dealerships will take money off the price of a car if you trade in your used car, to put towards a new one if you buy from their dealership. This is winning all the way around; in most cases, selling your car independently doesn’t make much sense in the long run.

If you want to increase the chances that you will be approved for a loan and get into a better car with less mileage and fewer repairs needed in the short-term, saving money for a down payment is a great idea. If you can, cut out those impulse buys that you don’t need and put money away for a couple of months while looking for a vehicle. Once you find the one you want, you should have a little extra to put toward the purchase, which will work by both decreasing the amount you owe and maybe even lowering the interest rate that you can get from the lender.

The more you put down the more you’ll save in interest

In general, the more that you put down for a car, the less you have to finance. The key is to not strap yourself by putting all your savings or your rainy-day fund into a new or used car. If you put in a down payment and leave yourself penny-poor, if the car should need repairs or something else unexpected happens, you won’t have the reserves to weather the storm. The last thing you want to do is to put yourself in a position where you can’t make your car payment. That will not just risk you having the car repossessed; it can ruin your credit for a very long time.

Calculate the amount you put down as a part of the total equation. If you have a certain amount that you feel comfortable putting towards the car, subtract that from how much you want to spend and have a figure in mind. The worst thing you can do is to walk into a dealership telling them how much you can afford each month and how much you have to put down. There are many options that they will offer to lengthen your loan term or make other adjustments to get you into the car that you want. But if you don’t have a figure in mind, then it is easy to get in over your head and end up paying much more for a car than you should or taking out a loan that will strap you for a very long time.

If you don’t have the luxury of waiting to save money and you don’t have a trade-in, then the answer is to find an affordable and reliable car that will get you from A to Z. While you are driving the car that might not be your dream, focus on saving for the future, so that someday you can drive away in the car you want. Good things always come to those who wait for the right opportunity. If you have the time to save, do. If you don’t, don’t overspend -- period.