Should I put more money down for downpayment to lower the loan amount?

Question

The vehicle I am interested in buying is around $18000. I am not sure if I should put as much cash ($6000) as possible as downpayment to lower the monthly payment. or should I keep more money in the bank account and pay less downpayment ($2000) and have higher payment? What do you think?
Thanks.

Answer 1

If you can pay more for the down payment then you should. It might also reduce the interest rate.

Answer 2

With finances, it always depends on the interest rate that you can get. If you can get a higher interest rate on your money than what you are being offered for the loan, then place less money down. If the interest they are charging you is high, then put more money down.

If you are being charged something like 3.9% interest, but you can get 5% interest by opening a savings account, it would mean that you would be able to actually make a tiny bit more money by putting a lower down payment and placing the remaining money in a savings account. (Now compounding also comes into play. Most savings accounts compound daily and car loans typically use simple interest)

On the other hand, if you are being charged 9% for your auto loan and can only save at a 5% rate, then obviously place more money down, so you pay as little interest as possible. Place enough down, but make sure you always have a reserve for those unforseen things. (ie keep an extra one or two car payments in a savings account incase you lose your job, lose the ability to make money for a short period, or anything similar)

Answer 3

The answer to your question is a Yes, with stipulation.


It depends on what your interest rate is, and what you can earn on your own money.

Lets say your car loan is for 3.9%
But you have that $2000 in a 7% yield fund...

Then you can make more money on your $2000 than you'd save by spending it.

However, generally speaking, that's not the way it goes. Car loan is probably more like 8.9% interest, and your bank might be paying you 2.5%

So, you are better off putting down as much as you possibly can. As long as it isn't so much that you have to use your credit cards to pay your bills. The concept is "How much % interest does the money you forked over cost you to get"

Look at it this way.

18,000 car
figure .. 6% sales tax
60 months
8.9% interest

= $$271 a month in payments if you put $6000 down

$22,260

Now, if you put down 8000.. your payments are 229

= 21,740 total purchase price.

spending 2000 saves you 520 in INTEREST. That's 26% of what you spent. Do you think you can earn 26% on $2000 in 5 years at your bank?


The higher the interest rate , the more money you save, of course


48 months comes out to
21,600
21,200

or a 400 savings.


The best thing, financially speaking, is to put down as much as humanly possible, and go for as short a term loan as you can afford. If you can afford, say $352 a month for 36 months with 8000 down (that's what it comes out to) then do that! You'll only end up paying $20,672 for the car.

Answer 4

On a vehicle loan, I am guessing that the interest paid is going to be substantially more than interest you could earn in a CD or term deposit at the bank. The more you put down at the start, the lower your overall payments will be. Shop around for different deals tho, some places will offer you a low percentage rate but you need to check for hidden catches in the fine print.

If you have a family member, parent etc, with extra resources you could try setting up a private loan for a rate equal to what they could get by investing the money themselves - ie around 6 or 7%.

Answer 5

Depends on if you have enough cash for some unforeseen emergency. Car loans aren't like home loans, where the interest adds up so fast. It wouldn't hurt to keep a little. These days you can earn 4% on a cd and get an auto loan for around 6%, so it won't cost you that much to hang on to some cash.

Answer 6

Since new cars depreciate after driving them off the lot...they are rarely an investment. That in mind, it would be best to pay it off sooner or go with the lower payments. This way you can allocate your monies elsewhere.

Answer 7

It will bring your monthly payment down about 60 dollars based on a 60 month agreement. w.a.c. (lol) do you want to save 4000 now or save 60 every month for 60 months