Buying a car is an exciting experience, but it can also be a daunting one. One of the most important factors to consider when purchasing a car is the down payment.
How much should you put down? The answer to that question depends on a number of factors, including your budget, your credit score, and the cost of the car. Let’s get into it!
Budget
First and foremost, it’s important to have a budget in mind before even considering purchasing a car.
Take a look at your finances and determine what you can afford to spend each month on a car payment. This will help you determine how much you can afford to put down as a down payment.
Credit Score
Your credit score is another important factor to consider. A higher credit score can lead to a lower interest rate on your car loan, which can ultimately save you money in the long run.
If your credit score is low, you may need to put down a larger down payment to secure a lower interest rate.
The Rule of Thumb
When it comes to the cost of the car, the general rule of thumb is to put down at least 20% of the purchase price as a down payment.
This helps to reduce the amount of money you’ll need to borrow and can also help you secure a lower interest rate.
For example, if you’re purchasing a car for $25,000, a 20% down payment would be $5,000.
You Can Go Lower
While a 20% down payment is recommended, it’s not always possible for everyone. In Canada, the average down payment on a new car is around 10% to 15%.
If you’re unable to put down 20%, consider saving up for a larger down payment before purchasing your car. This can help you save money in the long run by reducing the amount of interest you’ll pay over the life of your car loan.
Car Loan Length
It’s also important to consider the length of your car loan. A longer loan term may lead to lower monthly payments, but it also means you’ll be paying more in interest over the life of the loan.
If possible, consider a shorter loan term and a larger down payment to reduce the amount of interest you’ll pay.
Type of Car
Another factor to consider when determining your down payment is the type of car you’re purchasing. A new car will typically require a larger down payment than a used car.
Additionally, luxury cars may require a larger down payment than a standard sedan or SUV.
It All Depends
Ultimately, the amount of your down payment will depend on your unique situation. Take the time to consider your budget, credit score, and the cost of the car before making a decision.
It’s also important to shop around for the best interest rates and loan terms to ensure you’re getting the best deal possible.
If you’re ready for a car loan, we’d love to help with that! simply fill in the form below to get started.