WHY A DOWN PAYMENT IS IMPORTANT
If you are looking for a new or used vehicle, but wondering how to pay for it. In this article, you will find out why a down payment is important when purchasing a vehicle.
There are four factors that are considered in an auto finance credit decision: your application information, personal credit history, the vehicle you are considering, and your down payment. This article will help you understand why a down payment matters.
what is a down payment?
If you are not familiar, a down payment is the amount of cash or trade in equity you pay up front when you finance a vehicle. This amount will affect your monthly payment because it takes away from the total balance. Also improve your financing offer, which could include a lower annual percentage, which is another reason why a down payment is important.
Many people ask what the average down payment is, and there isn’t really a set amount. The real answer: the more you can put down, the better, because anything helps. Even a small down payment – even $100 – is better than not putting down anything. Putting down any amount can improve your financing offer, because essentially what a down payment does is reduce the amount of money you have to borrow.
Some customers don’t know that they can use the equity they have in their current vehicle as part of their down payment, so they usually don’t consider this when they are budgeting for their next vehicle. You can add the trade-in value to the cash you are putting down, therefore increasing the down payment. Also, your tax refund can also be used as a way to make a down payment.
The larger your down payment, the less likely you will be “upside down”. This can happen when you owe more on your vehicle than its value at the time of sale or trade-in. This is also called negative equity.