Down Payment 101: Why & How Much Should I Put down on My New Car?

Where is the crystal ball telling us how much to put down on a new car? Is it math-magic or can it simply be what a person can afford?

Friends and family will give you their opinion. The internet is full of contradictory information and if we’re honest, we’re not sure we want to trust the car dealership. So, where’s the truth?

It’s right here! This blog goes beyond smart statistics and tells us why a down payment is beneficial, how the amount differs between a new vehicle and a used vehicle and what to do if you can’t afford the recommended percentage.

Keep reading…it’s short, it’s sweet and it spills all the details!

What are the Benefits of a Down Payment?

With a down payment you can lower the interest rate, reduce the amount of monthly payments, or keep the payments the same but reduce the loan term. Any of these new car down payment benefits will save money and stretch your transportation dollars.

Pay Less Interest

If you do not qualify for a low interest loan, you can still lower the amount of interest you pay with a larger down payment. Those reduced interest payments really add up over the life of the loan. There are online auto loan calculators you can use that will show you just how much you could be saving. The financial professionals at MCCU will also be happy to assist you.

Offset Depreciation

Offset depreciation with a down payment on your new car. Cars depreciate quickly and it is easy to owe more for your car than what it is worth. Some call it negative equity, some call it being up-side-down, but whatever you call it, it’s a condition to avoid. A down payment builds equity so you can avoid or reduce the amount of negative equity in your vehicle.

Lower Loan Amount

A down payment for your new car will lower your loan amount. With a lower loan amount you could have lower monthly payments or keep the same payments and pay off the loan sooner. Both of these advantages will be beneficial to your finances.

How Much Should I put Down On My New Car?

The recommended percentage for a down payment on a new car that will protect you from paying too much in interest and financing charges is 20%. With at least 20% down, your lender will have more confidence that the loan will be paid off because you have made a personal investment with a favorable amount.  A minimum down payment for a used car to offer the similar results is 10%. 

You could think of your down payment as just your first car payment, but the financial benefits will be much greater the more you put down.

What if I Can't Afford a Down Payment?

If you cannot afford a down payment for that new car, you have several options.

Perhaps you could wait a little longer and save the money you need for the down payment. Good things come to those who wait. 

You could also buy a less expensive vehicle. While it may not be the exact one you were hoping for, you could find one that serves your needs quite nicely. 

If you do not have the funds for 20%, could you swing 10-12%? The compensation you receive will not be as good as 20%, but it would still be a financial benefit and worth checking into. Talk to one of our MCCU Member Service Representatives who are here to help with financial decisions; they are here to protect your financial future.

Ready to make a down payment on your new ride? Apply for an auto loan with Missouri Central Credit Union. Call (816) 246-0002 to speak to one of our friendly staff members today!

Apply for an Auto Loan with MCCU