A down payment is money you pay upfront and out-of-pocket for your vehicle before you even drive it out of the lot.
Though making a down payment on a vehicle is highly recommended, it’s not always mandatory. There are some programs that don’t require a down payment and others that will allow you to defer all or part of your down payment if necessary.
However, be prepared for a higher interest rate and larger monthly payments if you don’t make a down payment. Especially if you have poor credit, making a large down payment can help you out immensely in the long run. It can decrease the length of your loan term by months, if not years, saving you thousands of dollars in interest.
Interest rates are decided by many factors, one of which is the down payment you place on a car. The more money you pay in the beginning of your loan, the less you will have to pay later. Especially when there is a higher interest rate, it’s important to pay a large down payment. Putting a larger down payment on your car will decrease the length of your loan, giving it less time to compound and ultimately giving you better savings in the end.
You never want to put yourself in a situation where you are paying more for a car than it is worth and putting a large deposit on a car is one of the ways you can ensure that you never do.
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