April 15, 2014
How Big Should My Down Payment Be?
When buying a used car in Oklahoma, you have a number of choices to make. Beside the obvious choices about the car itself – How big should it be? What year? What color? – you also have to make some important decisions when it comes to payment. One of the most common questions we’re asked at our buy here, pay here dealership is: How big should a down payment be?
In general, the size of your down payment is a matter of personal preference. To make the best choice for how much you should put down on your car loan, it helps to understand how a down payment affects your purchase.
A down payment is the initial payment you make on your used car before you begin financing. According to an old rule, your down payment should be at least 20% of the total purchase value – in other words, if you were to buy a car worth $20,000, you should put at least $4,000 down. However, this rule is not often followed today. According to used car pricing site Edmunds.com, the average down payment on a used car is about 12%, and many buyers will pay less than that.
This is due to a number of factors, including higher prices on cars and more generous loan terms on many cars. Many people will even take advantage of special no-money-down options at used car dealers, letting them walk away with a car without any out-of-pocket expense.
The effects of the down payment go beyond your initial expense, though. The amount of money you put down lessens the amount you must finance, meaning a higher down payment leads to lower monthly payments and (usually) a lower interest rate. In effect, by paying more up-front, you lower the total amount you spend over the course of your loan.
For example, think about the $20,000 car mentioned before. The person paying a 20% down payment would then have a $16,000 loan that they would have to pay with interest. In contrast, a person putting 10% would have an $18,000 loan, and so they would owe more interest over the course of the loan (and perhaps have a larger monthly payment).
In many cases, then, it’s in your best interests to put down a larger down payment on a used car. However, if you can’t afford any down payment at all, you can still get a car from a buy here, pay here dealer such as The KEY. We understand that during tough times you might not have thousands of dollars on hand to buy the car you need, and we’re willing to work with you to come up with a payment plan that fits your budget and lifestyle.
If you would like to learn more about The KEY’s no-money-down car loans and our high-quality used cars, contact us today! Or, you can always follow us on Twitter or Facebook for special deals and the latest Oklahoma City used car tips and tricks!