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Is a Down Payment Necessary to Buy a Car?

People who are thinking about buying a car should know the answers to two very important questions about down payments:

"Do I need to make a down payment to buy a car," and/or "How much should I put down?"

Let's start with the first question. Whether or not you will have to come up with a down payment depends on your credit history. If your credit history is good, chances are that you won't have to make a down payment. If your credit isn't so good, they will most likely require a down payment. Why do auto lenders want a down payment? The reasons are this:

1. They want you to prove that you're committed.

By making a big down payment of a few thousand dollars, you demonstrate that you're invested in the loan. Banks have found that when people make a big down payment they're much less likely to default. A bank will want you to prove your commitment if you've had any credit issues in the past or if you're a first-time borrower without an established credit history.

2. A down payment reduces their risk.

It's a pretty big loss for the lender when a borrower defaults on a car loan. If a bank approves your loan and your credit history indicates that you may default, they're going to ask for a down payment. Again, if you have clean credit history, there is no reason for the bank to think that you will default. In this case, they won't require a down payment.

For those with bad credit or no credit, the bank will require a minimum of 10% down. Many times they will require 20% to 30%. For those of you who are first-time buyers, there are some programs available for you on the purchase of a new vehicle. For example, Ford and Toyota offer such programs that allow you to put little or no money down. If you meet their requirements, you will be able to purchase a new vehicle with a very little down.

The second question's answer is: "You should put down as little as possible!"

There are many ways to spend your money instead of using it for a down payment on a car. A car is a depreciating asset. If you could use that money to pay off a high-interest debt like credit cards or to buy a house, you should. It is important to always have a cash fund to make your payments if an emergency arises such as illness or unemployment. If you can help yourself financially by using the money for your down payment for something else, you should do it.

However, there is one case in which you shouldn't "put down as little as possible." If putting a little money down lowers the interest rate on your car loan, you should. If putting some money down will mean a 5.99% rather than a 7.99% interest rate, it would be a smart decision to do this. You can sometimes get a better interest rate by putting an extra $500 or $1000 down. If you get a lower interest rate, you will save yourself a considerable amount of money on finance charges over time.

Article Source: http://www.uberarticles.com/articles

Author Jason Lancaster, an auto industry veteran, developed AccurateAutoAdvice.com. You'll find accurate advice on money down on a car and auto loan money down.

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