Down Payment For a Used Car: What Is It and How Much Should It Be
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When buying a used car, you have to pay attention to several details.
Finding a vehicle in good condition you can rely on for years to come is an important consideration. That's why it's essential to research the market for examples with the options you want with attractive prices.
If the used car you're after happens to be far away, you'll need to arrange travel or have it transported to you. And lastly, like most buyers, you'll probably be financing your car and have to work through the process of applying for and securing a loan.
But what about making a down payment on a car? Making a down payment seems simple enough, but how much or how little you put down has both long-term and short-term effects.
Let's look at used car down payments and what they mean to you.
What is down payment?
A down payment is upfront money put toward a vehicle purchase. You can make a down payment by paying cash, trading in another vehicle, or a combination of the two.
A down payment reduces the total sum you finance and affects how much or how little you pay each month when repaying your auto loan. Your down payment can also influence the loan terms that lenders offer you.
Financial situations vary from buyer to buyer, so there's no one-size-fits-all amount to spend on a down payment. Down payments are typically a percentage of the purchase price. As a buyer, you decide the exact amount of your down payment depending on what figure makes the most sense for you financially.
Buying a used car can be a confusing process, especially when it comes to financing. Shift's experience and expertise, however, make the process smooth and easy. Shift works with a network of trusted lenders, ensuring you get the best deal on financing.
How much down payment for a car?
Deciding on a reasonable down payment amount involves several factors: your budget, how long of a loan term you'd like to obtain, and the amount you'd like to spend per month.
The truth is, there are benefits to both large and small down payments when you buy a used car.
When you decide on a large down payment, say 10 percent, that amount reduces the total amount you'll need to finance. With that initial sum out of the way, you'll have lower monthly payments and will be responsible for less money over the life of the loan.
Additionally, lenders tend to offer lower interest rates to borrowers who make larger down payments. Making a sizeable down payment reduces the risk for lenders, and subsequently, they offer you better terms on a car loan.
Also, cars depreciate over time, so putting money down protects you from being upside down on an auto loan. "Upside down" refers to a troublesome financial situation where the amount you owe exceeds the vehicle's value.
When you make a smaller down payment on a used car, you have the perk of keeping extra money in your bank account for other expenses. If it's a financial stretch to buy the vehicle you want, maybe a lower down payment makes more sense for you.
Saving for a down payment
If you decide you'd like to make a down payment in a specific amount but don't have the money, there are several ways to save up.
First among those is setting a budget and sticking to it. Coming up with a specific sum of money you're able to spend while also setting aside a portion allows you to build up your savings account over time.
Next is finding methods to cut spending and keep that money for your down payment. Passing on that expensive dinner out or putting off a vacation for a future time keeps funds at hand and in your bank account.
Setting a goal for a down payment helps you map out a financial path to reach that number. Once you've decided on an amount, say $3,000, you'll get a clearer perspective on the steps you'll need to take to get there.
And though monthly credit card payments may seem small, they add up and take away from money you could be putting toward a down payment. Refraining from using credit cards reduces your debt load frees up the funds you'll need for your vehicle purchase.
Buying a used car is a big decision. Finding an excellent example from a trusted seller is essential, with so many vehicles to choose from, whether pickup trucks or muscle cars. With Shift's experience selling used vehicles, you know you're getting a quality vehicle at a fair price.
Every vehicle sold by Shift undergoes a 150-point inspection by certified mechanics, and you get a free Carfax report for the ultimate transparency. And Shift takes away the stress of negotiating with their no-haggle prices powered by powerful machine-learning algorithms and tons of data.
2016 Honda Accord LX (from $19,500)
Other considerations when making a down payment
As you sift through options and zero in on a down payment amount you're comfortable with, there are a few things to consider.
The smaller your down payment, the larger the amount that you’ll have to finance. A substantial down payment will take care of a portion of the cost of your vehicle purchase from the get-go, and it will make you eligible for better terms from your lender, too. If you have good credit and are able to receive a loan for the remaining balance, you’ll have extra money in your pocket that you can use for other things in the short term, like home improvements or planning a vacation.
Remember, the down payment amount that's right for you depends on your financial situation and what makes the most sense. It may not be high, and it may not be low. But somewhere in between may be just right.
2015 Volkswagen Golf GTI SE (from $21,150)
Down payment for a used car in summary
Making a down payment on a used car offers you many benefits, whether you decide on a large or small amount.
While putting more money toward your vehicle purchase will reduce what you'll owe down the road, a smaller down payment will keep dollars in your bank account for immediate expenses.
The size of the down payment you decide to make ultimately hinges on what's best for you and your monetary situation. Generally speaking, when purchasing a vehicle, it's a good idea to put something down rather than nothing. But it's not necessary.
What is necessary before buying your next car, however, is taking a test drive. But what if the vehicle you want isn't local to you? If you live in one of Shift's many service areas, a concierge will drive to you and let you drive the vehicle you want, so you can get a feel for it before signing the papers.
And remember, once you choose the car that’s right for you, don't be afraid to borrow. Just borrow wisely.
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All prices are based on vehicle availability and pricing as of
April 15, 2022
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