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What's the Best Amount for a Car Down Payment?

What's the Best Amount for a Car Down Payment?

We talk a lot about car loan down payments as they are an integral part of the process. But how much is enough? Is there an ‘ideal’ amount to put down on a car? We asked our Simcoe car loans team to outline the benefits of using a down payment and the kind of amount you should be looking at.

 

Simcoe car loan down payments

 

A down payment on a car loan helps in a number of ways. It reduces the amount of loan you need to buy the car, it reassures lenders that you’re risking your own money as well as theirs, it helps prevent negative equity if buying new and will reduce your monthly car loan payment.

 

Not all that long ago, people would regularly put down 20% as a down payment on a car.

 

Steadily rising prices meant saving up 20% could take a while or put finances under strain. This has gradually led to people putting less money down.

 

Car loans have become longer to help cancel out higher prices charged for cars and down payments have become smaller, for the same reasons.

 

Is there an ideal amount for a car loan down payment?

 

There is not an ideal amount for a car loan down payment. Many lenders will require a minimum of 10% but you can get no money down car loans, so nothing is set in stone.

 

Typically, we recommend somewhere between 10-20% of the car’s value for a down payment. The more you can afford to put down, the better.

 

However, we urge caution when putting together a down payment. While a larger down payment means a cheaper loan, we would urge you to not empty your savings to pay it.

 

You’ll still need savings and an emergency fund is a necessity.

 

We suggest using savings buckets, where you allocate a portion of savings towards your car loan down payment while leaving other savings in place to handle emergencies.

 

Benefits of down payments for car loans

 

There are benefits to a down payment, as we mentioned above.

 

Reduces the car loan amount – The more you put down, the less you have to borrow. This helps you afford the loan but also helps you qualify for it too.

 

Reassures lenders your own money is at risk – Lenders are in the risk business. The lower the risk you present, the more likely they are to lend you large sums of money.

 

Helps prevents negative equity for new cars – A down payment can help offset that initial dip in value as you drive away a new car. While negative equity isn’t a bad thing, not everyone likes it.

 

Reduces your monthly payments – A lower loan amount means a lower monthly payment. If money is tight, a larger down payment is cheaper than a longer car loan.

 

So, there is no perfect amount for a down payment but we typically recommend between 10-20% of the car’s value. Anything over that is just a bonus!

 

We will use all our skill and experience to deliver the lowest possible Simcoe auto loan rates, guaranteed. Contact Car Nation Canada Direct to learn how we can help.

 

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Categories: Auto Loan

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