what would be a good down payment for a car?

Question

planning on purchasing a car soon. i plan on putting down 10% of the total cost. is that too much? too little? a reasonable amount?

Answer 1

The more you put down the less you will owe and the less you will have to pay monthly. A car is a depreciating asset. It loses money as soon as you drive off a dealer's lot. Why? It is now used and has less value. I have seen many people who are amazed that their car is worth less than what they owe. Here is how it works: With good credit and a manufacturers program of "0" down and 0% financing for 60 months sounds like a no loose situation. The car with tax, title and registration could be $24,000. Divide by 60 with no interest would mean a monthly payment of $400. You keep the car for 3 years and paid $14,000 in payments. You still owe $9600. Your car might be only worth $6000 after 3 years. If your car was in a accident and gets "totaled" by your insurance, they pay you the value of $6000. You still owe $3600. If you try to trade your car in for the value, you still owe $3600. This is known as being "Upside Down".
This might seem as a drastic example but I see it all the time.
As you can see, the more you put down, the better off you will be in the future. The more you pay for interest just compounds the situation.

Word to the wise: Put down as much money as you can afford. Save on monthly payments. Avoid the problem of having "negative equity".

Now leasing a car is a whole other lesson. I could type pages of the benefits but I will leave that for another day.

Answer 2

There's really no right or wrong amount of down payment from your perspective (the buyer). The reason for a down payment is to protect the lender, both as a show of good faith on your part and as a way of keeping the loan 100% secured (i.e. since a new car immediately depreciates once it's sold, the down payment helps keep the loan amount at least equal vs. the remaining value of the car...so theoretically if you default on the loan, the lender can reclaim the car, sell it, and in the end have lost nothing).

If you have excellent credit, you can get a loan with no down payment required. Some people think "great, I'll just take that down payment and spend it on something else, or invest it in the stock market", etc.

However, you have to realize that 1) you'll be paying more in interest over the life of the loan since the amount of the loan is larger, so any investment will need to beat your loan's interest rate, otherwise it is a net loss of money. And...

2) You will almost certainly be "upside down" early in your loan (as soon as you drive it off the lot it loses 10-20% of its worth since it is now used, yet you still owe 100% of its brand new value).

Scenario 2) is risky because if you get in an accident that totally wrecks the car, the insurance company will only compensate up to the current (used) value of the car, whereas your loan will be greater than that amount, hence you'll be stuck paying the difference out of pocket. If you've already squandered the down payment money on other things, or it's tied up in investments, then this is trouble.

My personal philosophy is -- don't take needless risks. Put as much down as possible without depleting your savings account (try to always keep at least 3 months of living expenses in savings). The only exception I'd say is if you got a crazy low interest loan, such as the 0% loans GM and Ford have offered recently.

Answer 3

as much as you want to spend. if you have good credit than you don't need to put a dime down. it will just make you principle payoff balance and your monthly payments higher. i have always lived by the model to spend other peoples money. houses are different because the are a investment, and cost conciderably more. cars depreciate in value the second you drive out of the lot. personally i would rather keep my money in the bank, or invest it, not put a dime down, and just make payments that i can afford ( while still not living paycheck to paycheck) than put a considerable amount down, and not have that money at your disposal.

Answer 4

The better your credit, the lower your risk factor is and the lower your down payment requirement would be. That said, put down as much as you won't miss unless you qualify for one of those 0% or very low APR deals. Then put down as little as possible and invest and draw your monthly payments from the investments if you need to.

Answer 5

I prefer to buy a good banger and pay cash. You can get good reliable models for 4k or 5k. I am not going to pay interest in a thing that is losing value everyday. And you have to have full insurance too.

My first car was 900, the second one was 1800 and the 3rd one has been 3k. My next one will be paid in cash, and finally I can afford a new one. A Jeep patriot, I hope.

Answer 6

I would put down 25% if i had the money to cover it.

Answer 7

2,000 dollars,the more you put down on a car the less your monthly payment will be.

Answer 8

100%

or don't buy it.

payments are for losers.

work hard, save your money pay cash sleep like a baby.