Are you looking to buy a new or used vehicle? Then it's time to start thinking about your down payment. A down payment is the upfront lump payment that you make for your vehicle. If you have not purchased a vehicle recently, then you may be wondering how much you should put towards a down payment. Here, we'll take a look at down payments and how much you should save up. 

What does a down payment include? 

A down payment on a vehicle can include cash, a vehicle trade-in, or a combination of both. If you are planning to include a vehicle trade-in with your down payment, then you should have a good idea of what your vehicle is worth. You can use resources such as the Kelly Blue Book website to get an estimate of your vehicle trade-in value. 

If you are buying a new car

If you are looking to purchase a new vehicle, then you will want to have a down payment that equals about 20% of the total value of the vehicle. If you can provide at least a 20% down payment, then you will be well-positioned to get approved for a vehicle loan. Not only that, there are some other benefits of providing a 20% down payment:

  • Protects you from depreciation - As you own your vehicle, it will depreciate. When you place 20% down on the vehicle, then you will have 20% equity on the value of the vehicle. Since the average new vehicle depreciates 20% in the first year, you will be well protected from owing more money than what the vehicle is worth. 
  • Lowers your chances of going "upside down" on the loan - Being upside down on a loan refers to you owing more money than what the vehicle is worth. This could be an issue if you want to sell the vehicle before it is paid off. When you provide a 20% down payment, you are less likely to end up in this undesirable situation. 

If you are buying a used car
If you are purchasing a used vehicle, then you can provide a 10% down payment. That's because the used vehicle has already depreciated, and you don't have to spend that much to prevent yourself from being upside down on the vehicle loan. If you have a smaller budget, then purchasing a used vehicle may be the smarter choice. 

If you have less than good credit

If you have less than good credit, then you should try to provide as large of a down payment as possible. That's because a lender will be less willing to provide a loan to someone with less than good credit. When you provide a larger down payment, you give the lender more peace of mind that there is some equity in the vehicle. 

The advantages of a larger down payment

You may be wondering why you should provide a larger down payment. Here's a look at the five advantages that a larger down payment will offer you: 

  • You can lower your monthly payments - The larger the down payment that you provide, the less you will owe on your vehicle. Therefore, you won't have large monthly payments. This can allow you to have some better flexibility when it comes to managing your monthly bills. 
  • Increase your chance of loan approval - A larger down payment will also increase your chance for lender approval. That's because the lender will have to take less of a risk with a larger down payment. 
  • Shorter loan term - If you don't want to deal with a 60-month or 72-month loan term, then you will want to consider a larger down payment.  With a larger down payment, you may be able to secure a loan term of 36 or 38 months. 
  • Pay a lower interest rate - Since a larger down payment reduces your lender's risk, you are more likely to receive a lower interest rate. 

5 tips on how to save for a down payment

Since a down payment is going to play a major factor in your overall vehicle financing, it is important to get started as early as possible. Here's a look at five tips that can help you save for your vehicle down payment. 

  • Set a goal - You should set a goal as to how much you want to save for a vehicle down payment. For instance, if you are looking to purchase a new vehicle valued at $50,000, then you may want to set a goal of saving $10,000. 
  • Use automatic savings - You want to make it as easy as possible to save each month for your down payment. By creating an automatic savings plan, your financial instruction can save a portion of your income each month towards your down payment. 
  • Reduce impulse spending - Impulse spending can easily ruin a monthly budget. If you are saving for a down payment, then you need to control your spending. Create a "24-hour" rule where you will postpone any unplanned spending for at least a day to see where this impulse purchase is truly necessary. 
  • Reduce credit card use - Create card use can be a real problem because the high-interest rates can cause your debt to explode higher. If you have high debt, then you may have to spend more money to service that debt. 
  • Create a budget - Finally, you will want to set a budget. A budget means that you take your income and divide it up to manage your debt and savings obligations. There are several free budgeting apps available online including Mint by Intuit, Pocket Guard, and Personal Capital

Get your next vehicle at the Glockner Family of Dealerships

If you would like to learn more about down payments, visit the Glockner Family of Dealerships. We have a wide selection of vehicles with dealerships across the Ohio, West Virginia, and Kentucky area. Our team will help guide you through the purchasing process to get you the vehicle deal that you've always wanted. 


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Contact

Glockner Family of Dealerships

2901 US Highway 23
Directions Suite A
Portsmouth, OH 45662

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