Estimating a good down payment is an essential part of the car buying process. So what does a good down payment mean with a low credit score? The down payment is the cash you need to secure a car loan and purchase a car. As with any big purchase, the more money you are able to put down up front, the lower your monthly payments will be going forward. While putting down as much money as possible is an easy answer, most car buyers are working with a limited budget. A good down payment works realistically with your budget, balancing a large payment now with manageable monthly payments later.
There are several factors to take into account when estimating a down payment. First, new cars have higher down payments. This larger payment is meant to offset the immediate depreciation of a new car. Dealers and lenders usually require 20 percent of the purchase price for new cars while the down payment on a used car is typically 10 percent of the purchase price. For example, a new car costing $20,000 requires a down payment of $4,000. A used car costing $20,000 requires a down payment of $2,000. When looking at car prices, remember that you are estimating. The actual down payment will be based on the car’s final price which may be different from the sticker or asking price. If you are trading in a car, the value of your trade-in can be put towards your down payment. If you need a down payment of $4,000 and your trade-in is valued at $500 then your cash down payment is reduced to $3,500.
Another important factor is your credit score. In order to see what dealers and lenders will be looking at, request copies of your credit report from Experian, TransUnion, and Equifax. These are the three main credit reporting agencies. The better your credit rating, the lower the interest on your car loan. With good credit the minimum down payment required may be a good down payment. However, if you have had credit problems you may be looking at a high interest loan. You can decrease the amount of interest charged over the course of your loan by increasing your down payment. In this case a good down payment is higher than the minimum down payment.
Whether you want to purchase a car now or are just starting to save up, estimating a good down payment is an important tool for determining what you can afford. Contact our bad credit loans financing team for more assistance.