Benefits of a Down Payment

Whether it’s a new or used vehicle, purchasing a car is a very big deal! As such, it’s imperative you go into the transaction educated and informed on the steps you should take to get a good deal and have an enjoyable experience. One of those steps is to use a down payment! While most experts suggest you should put down at least 20% of the cost of a new car and 10% of a used vehicle, the team at Ken Ganley Kia can help you with any amount — even if you have no down payment. But if you can put money down, you’ll open the door to a vast number of enticing benefits. Let’s take a closer look at what a down payment is and why using one makes dollars and sense.

What Is a Down Payment?

Before we begin discussing the amazing benefits of using down payment, it’s important we set the table by clearly explaining what it is. A car down payment is the money you pay upfront to purchase a vehicle through an auto loan. Many lenders will require that you place a down payment, but even if they don’t —it’s a great idea. Why? Because when you use a down payment, you will:

1. Pay less interest,
2. Reduce your monthly payments,
3. Protect yourself from owing more than the vehicle is worth,
4. And more

Reduce the Vehicle’s Total Cost with a Down Payment

It’s simple, the more money you put down for a car, the less money you will be required to borrow on your auto loan. And you’ll then pay significantly less interest on the loan, which reduces the total cost of the vehicle. While seldom considered, the total cost of the vehicle is the sticker price, all fees, and charges, as well as the finance charges you’ll pay over the life of the loan. For example, if you took out a $30K auto loan for five years with a 4.5% interest rate, you’ll pay about $3,600 in interest. However, if you’re able to put down 20% — about $6,000 — you’ll end up paying less around $2,800 in interest. As you can see, the savings can quickly add up when you use a down payment.

Increase Your Approval Odds & Better Interest Rates

The interest you pay on an auto loan is directly correlated to your credit score, which helps the lender determine the amount of risk associated with underwriting the loan. In other words,

– The lower your credit score, the less likely you may be to make payments on time. This necessitates a higher interest rate.
– Those with higher credit scores pose a much lower risk and will usually enjoy lower Interest rates

Another factor that can determine the interest rate is the amount of the loan. And when you use a down payment down, you can greatly improve your likelihood of being approved for an auto loan because you’re demonstrating you have “skin in the game”. At the same time, a down payment reduces the amount of risk associated with the loan by lowering the total amount financed, which may lead to lower interest rates.

Lower Your Monthly Payment

Making a down payment slashes the amount you’ll need to borrow. In doing so, the down payment also will lower the amount of your monthly payments. Here’s how a down payment can help you lower your monthly payments: if you were to purchase the same $30,000 vehicle on a five-year loan at 4.5% APR, your monthly payments would be around $560 a month. By putting a down payment of 20% or $6,000 for the vehicle on the same loan, you could reduce your monthly payment by about $112 every month. Your monthly payment would be around $447, which is significantly more manageable than $560.

Protect Yourself from Being Upside Down

Being upside down on an auto loan is, unfortunately, very common. This explains a condition where you owe more on a vehicle than it’s worth. For instance, if your vehicle has a market value of $25,000, but you owe $30,000, you would be $5,000 underwater or upside down on the loan. Why does this happen? Mainly because of depreciation.

Most vehicles will lose about 15% of their value every year, but new cars will depreciate much faster during the first few years. A new car can lose 25% or more in the first year. If you fail to make a down payment, you can easily see how depreciation can cause you to be upside down on a new or used vehicle. Being upside-down can make it difficult to trade or sell your vehicle later down the road due to the fact you may not get enough to pay off the existing loan. And if you are upside down and get in an accident that results in a total loss, you could be on the hook for the difference between what you owe and what the vehicle is worth.

Contact Ken Ganley Kia

While we always suggest you use a down payment on the purchase of a vehicle, this isn’t a must-have pre-requisite at Ken Ganley Kia. At Ken Ganley Kia, we have access to a vast number of auto finance programs and solutions designed for people with all types of credit scores and from all walks of life. Whether you have a down payment of $5.00 or $5,000, we will work to help you find a vehicle you love at monthly payments you can afford.

Contact Ken Ganley Kia today for your next new or used vehicle.