When you recycle your old car, you’ll naturally want to buy a replacement. It’s common for people to get so wrapped up in the monthly payments they can afford that they more or less forget about the down payment, and that’s a real shame since the size of your down payment will greatly affect your overall financing.
The old rule of thumb states that you should save up around 20% of a vehicle’s value for a down payment if you’re going to be buying. You might think that getting that money together is going to be hard, but you can always put the money you make from recycling your car towards the down payment for your new ride. Here are just a few reasons why it’s worth going big on your down payment.
Lower Interest Rates
When you’re able to lay down a large down payment, you’re showing lenders that you’re a low-risk borrower. You’ll also be reducing the amount of money you actually need to borrow to start making the new car your own. As such, a large down payment generally yields lower interest rates, which means you’ll end up paying less over the length of your loan.
Higher Chance of Approval
If you’re fortunate enough to have very good credit, you probably won’t experience any problems getting approved for a car loan. However, some people need to shop with poor credit or no credit history at all. If you find yourself in this category, it really pays to get together a large down payment. You’ll be more likely to get approved, and you won’t have to accept a bad financing deal just to make the deal happen.
Lower Monthly Payments
You might think it’s easier to spread larger payments out over a few years instead of paying a large chunk of cash up front, but there are definite benefits to keeping your monthly payments lower. If you suffer a change in your financial situation or suddenly need to pay some unexpected bills, you’ll be glad your car loan payments aren’t putting too big a dint in your monthly budget.