Why Down Payments Matter Make a Bigger Down Payment

How Down Payments Affect Your Financing

Amanda Hart

That first big step

When you are buying your next vehicle, whether it is a new or used car, you already know how important it is to get the best financing on cars you can get. If you don't set a realistic loan in place, it can cost you much more money than it really should.

One of the big aspects of getting good auto loans is to make an appropriate down payment. There are several different factors that will affect your down payment, and it is important to make sure you get things right.

The recommended rule of thumb is to put down 20%, but the average down payment on a new car is about 5%. Not only is it important to make a sizable down payment on new cars to avoid getting upside down in your loan, but it is equally important for deals on used cars.

Set yourself up for success

When you buy a new car, the instant you drive off the lot you lose a large amount of value on the car. If you make a small down payment, that depreciation will mean that you will still owe more money than your new car is worth. This is called being upside down in your loan.

This really becomes a problem if you want to sell off your new car for whatever reason. You stand to lose out on a lot of money. It is also very important to make a large down payment on a used car as well, but for slightly different reasons.

The thing about down payments and used cars is that the larger the initial payment, the better loan terms you will get, since you are taking a smaller loan out. It also greatly matters what shape your credit is in. You need to always make sure you shop around for the bets finance.

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