Reader question:
Which is better when buying a new car? A big down payment or a small one?
Bernardo
It depends.
Huge down payments are something that most people want to try to avoid. When you need a car, and maybe you’re short on money, it could take months to save up enough for a down payment that could get you set up with a great car. Most people would prefer to pay things out over time. The ideal is small monthly payments and small down payment, but the truth is that both of these make buying a new car a very expensive experience.
If you make a good sized down payment, it’s kind of like telling the car dealer that you can be trusted in buying a new car. It can win you certain perks, like a better interest rate. There is another huge benefit of making a bigger down payment, and one you might one to thing about: when you buy a new car, after a little while its value often turns upside down. What does that mean? It basically means that the car is valued at less than the amount you have left to pay on it.
The best way to avoid all those things, such as high interest rates and owing too much money after your car has depreciated, is to make a big down payment. It may be more difficult, but it will off–or, at least, you will pay out less–in the long run. The general down payment made tends to be about ten percent of the total price of the car, so by upping your down payment to double of that number, or twenty percent, you are also upping your chances at getting a good deal on buying a new car.
Cheers,
Fashun Guadarrama.