Most lenders ask for a down payment as a condition of lending you money for a vehicle purchase. This includes loans issued through automobile dealerships. A down payment is a predetermined amount of money you have to pay up front to reduce your loan amount and obtain financing. Down payments serve additional purposes as well. For example, a down payment indicates to the lender you have the ability to save money and prioritize financial needs.

Making a down payment displays a sense of financial maturity and an understanding of the serious nature pursuant to borrowing money. It shows you want or need a vehicle and are willing (and able) to do what is necessary to acquire one. Down payments also represent income stability to lenders, which is an important factor taken into their consideration at when it is time to approve or deny a loan.

Higher Down Payments Equal Lower APRs

If your FICO score is the primary factor in determining the APR on your new car loan, the amount of down payment you make is second. Income and employment history also have an impact on your APR and loan terms, although these factors have more influence over approval or denial status than they do interest rates.

Some of the best auto loans offer low APRs plus low or no down payment options, but those are both rare and generally reserved for borrowers with A+ credit and verifiable financial security. Generally speaking, it is best to provide as high of a down payment as possible when entering a car loan agreement.

A larger down payment helps get the lowest car loan rates by reducing the amount of money you have to finance. The financed amount, also referred to as the loan principal, impacts the amount you pay in interest on the loan. The larger the principal, the longer it takes to pay off the loan. The longer it takes to pay off the loan, the more you end up paying in finance charges (interest). Most times when your principal is lower your minimum monthly payment requirements are also reduced.

Lenders are in business to make money. It is your job as the person in charge of your finances to save as much money as possible when borrowing. Your down payment not only helps save you money in the end, but it also occasionally functions as an equalizer for poor credit scores.

Some lenders even reduce APRs for fair-to-bad credit borrowers when a significantly high down payment is made.

By Admin