How Much Should Your Auto Loan Down Payment Be?

There are all types of deals out there these days when it comes to buying a car and an automobile loan. Many companies are offering dirt-cheap rates, while others promote that they are loaning are even loaning money without any interest rates over a specific period of time. Sometimes it’s hard to figure out how much of an auto loan down payment you should make.

If the dealership doesn’t offer these cheap rates, you may be able to get the interest down a little bit by offering a larger original payment on the vehicle you want to purchase. You need to realize that a car depreciates in value as soon as you drive it off the lot, so you don’t want to owe more money on what the auto is worth. For instance, if you buy a car for $15,000, but don’t make a payment on it, you still owe $15,000 on a car that may now only be worth $14,500.

If your original payment doesn’t cover the deprecation, then you’re behind the eight ball right from the start. This is also called being “upside down” on your auto loan. To make matters worse, some people who don’t make a down payment often take out another car loan to buy a new car while still owing on their last one.

Many financial experts state that making a substantial auto loan down payment is the best thing to do. They recommend that you put down at least 20 per cent of the car’s purchase price. This way, the owner should start to see positive equity about half way into a four-year loan, as long as they keep the vehicle in good shape.

If you can’t afford to pay 20 per cent, it’s a good idea to pay off as much as possible and keep the length of the auto loan as short as you possibly can. If you can calculate how much you owe on the car and its estimated value at any point in time, then you will know if you still owe more than the car’s worth.

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