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Why a Down Payment is Important

After all the grueling and tedious research you’ve done, browsing through a wide range of cars from different used car dealers, you’re at the final stretch and undoubtedly, auto financing is still the most popular way by far, so acknowledging how down payments work can help you budgeting for your next car.

The concept of making a down payment is easy. While some people often can’t bare the upfront cost of a new car, paying part of the total sum is possible. This also serves as reassurance for the creditors, which could potentially decrease the interest rate of your payment.

It is worth noting that it doesn’t have to be cash upfront though. Down payment can also be an equity you own that can cover part of the cost of your newer car. For car dealers, this often translates to your current vehicle, as most dealers out there do accept your old car as trade-in. In turn, the dealership appraise your car trade and determine its current worth. This accounts as your down payment on your new car.

Having a car loan calculator handy can help considerably here, as it quickly helps determine the amount of down payment you should make and what you can afford. Typically, it is recommended that you should at least be able to put down 20 percent of your car’s value as down payment. However, any down payment is better $0 down auto financing.

Generally though, you’ll want to make sure that your down payment is sizable enough that you can avoid going ‘upside down’ on your new car. This is also known as negative equity, in which case you own more money to your new car than it is actually worth. This most often occurs due to the substantial depreciation that comes along with a new car. Going upside down can also prove to be disastrous when it comes to insurance payoffs.

Always be wary of those seemingly attractive ‘0% interest rate car loans offers’ from some car dealerships that prey on the uninformed.

A down payment is a goodwill measure that indicates one‘s financial security and willingness to dedicate towards a payment. Regardless, knowing how much down payment you can afford may purely be speculating, unless you know what you’re buying. If you still have questions about down payment, then don’t hesitate to talk with us at Garston Motors, where we can offer in-house financial suggestions as befits your needs.