Posted on: Jan. 15, 2017 in Car Loans, Credit, Credit Score

Depending on how good your credit is, you may qualify for a zero-down auto loan. However, if your credit is less than perfect, you will most likely need to put something down. Of course, exactly how much will vary based on the price of the car, how good or bad your credit is, and other factors as determined by the lender.  You may feel like a down payment makes it harder to buy a car, and while that may be true, there are also some ways a down payment can work in your favor.

  1. When you finance a car, there may be a point when the car is worth is less than you owe on it. This is more likely to happen with a new car when you haven’t made many payments but the car has depreciated significantly since driving it off the lot. Either way, the more you put down, the less you’ll owe.
  2. You’re more likely to get a loan if you have money to put down because you’ll need to borrow less. Lenders like that.
  3. The amount of money you borrow is called the principal. The principal is divided over the term of the loan and that is one part of how your monthly payment is calculated. When your principal is lower, so is your monthly payment.
  4. Interest is charged based on the amount of principal owed and it’s added periodically over the life of the loan. The lower the principal, the less interest that will be charged.
  5. By making a down payment, you may have more options on your loan. You may be able to take a shorter loan period which will allow you to pay it off faster. Or, if your monthly payments are smaller, you may find you’re able to double up some months and pay it off quicker (beware that some loans carry early payoff penalties). To echo the point made in the previous item though, the shorter your loan duration, however you achieve it, the less you’ll pay in interest.

Down payments require a little bit of ingenuity to come up with, but in the long run they will end up saving you money. The more money you can pull together to put down up front, the more you’ll save. And remember, making those monthly car payments on time and eventually paying off the loan will help you raise your credit score over time. It’s a win-win!

If you need auto financing but your credit is keeping you from getting approved, CreditYes can help! We can match you with a dealership in your area that will be with you every step of the way. Our service is fast and free. Fill out our secure online application and get behind the wheel of your next car today!