Big down payment

[sccredit]

IMO it depends on a few factors.

I purchased DW's car about a year and a half ago.  0.9% APR through Infiniti.  I negotiatied cheap GAP through the delaer and put TT&L down.  I had the money to put more down but if I can earn 5%+ on the money why not use the bank's cheap money?  If something happens to the car I have GAP to cover the shortfall.  We keep DW's cars well after they are paid off so trading in or selling wasn't a concern.

If that loan was 7% or 8% I would have made a much larger down payment (or just paid cash).  

[Anonymous]

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@EddieK wrote:

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@Anonymous wrote:

i never quite understood the whole "save the headache in case you want to sell in the future" line of thinking. You're still eating the same depreciation when you sell; it just so happens you paid it up front. If i put a 90% downpayment on a car, and sell it 12 months later, I won't be upside down on the loan itself, but I'm still losing the same amount of $ on paper at the end of the day.

If anything, no down payment keeps you honest with yourself.

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It was easy for me to understand, I'm not paying interest on that 30K, so no, you're not spending the same amount after x amount of time.

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re-read my comment. I was referring to the depreciation hit. 

[Anonymous]

I wanted to share my thought process; here is what I have so far.

Scenario A: If I’m getting GAP insurance (up to 50,000 is the limit) then there is no point of putting any down payment because the bank has your back if you total the car.

Scenario B: If I’m getting GAP insurance (up to 50,000 is the limit) and I put a down payment and if the car is totaled, I “lose” the down payment. To put a down payment would make sense if I’m looking to lower the m/payments and risk losing it in a future.

*Assuming in both scenarios that my car is worth less than what I owe when totaled.

Now, Scenario B makes me think the following:

      Is the rate of depreciation higher than I would pay in the upcoming years? Does car depreciation stops at one point? Will I remain ahead of the value of my car? So in the case the car is total, will I recuperate some of the down payment?

Example:

Car is worth $40,000

M/payments are $500

Rate 1.5%

Down Payment $10,000

Depreciation 7,000 (app. According to Edmund.com)

In a period of one year

               Paid $6,000 (500*12)

               Owe $24,000 (30,000-6,000)

               Car worth $33,000 (40,000-7000)

               Recovered down payment $9,000 (33,000-24,000)

               No need for GAP insurance

Something I’m missing? Is the depreciation at the end of the year or rigth after you take it of the dealer lot? I believe the determining factor her is the depreciation as that value is without considering any previous (minor) accident or anything else that would lower the car value even further. Sorry if is a mess; this is the best during work hours.

[Anonymous]

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@Anonymous wrote:

I wanted to share my thought process; here is what I have so far.

Scenario A: If I’m getting GAP insurance (up to 50,000 is the limit) then there is no point of putting any down payment because the bank has your back if you total the car.

Scenario B: If I’m getting GAP insurance (up to 50,000 is the limit) and I put a down payment and if the car is totaled, I “lose” the down payment. To put a down payment would make sense if I’m looking to lower the m/payments and risk losing it in a future.

*Assuming in both scenarios that my car is worth less than what I owe when totaled.

Now, Scenario B makes me think the following:

      Is the rate of depreciation higher than I would pay in the upcoming years? Does car depreciation stops at one point? Will I remain ahead of the value of my car? So in the case the car is total, will I recuperate some of the down payment?

Example:

Car is worth $40,000

M/payments are $500

Rate 1.5%

Down Payment $10,000

Depreciation 7,000 (app. According to Edmund.com)

In a period of one year

               Paid $6,000 (500*12)

               Owe $24,000 (30,000-6,000)

               Car worth $33,000 (40,000-7000)

               Recovered down payment $9,000 (33,000-24,000)

               No need for GAP insurance

Something I’m missing? Is the depreciation at the end of the year or rigth after you take it of the dealer lot? I believe the determining factor her is the depreciation as that value is without considering any previous (minor) accident or anything else that would lower the car value even further. Sorry if is a mess; this is the best during work hours.

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the depreciation hit is as soon as you drive off the lot. 

the bigger monthly payment thing is a bit of a misnomer. Yes, you're paying more monthly, because you paid less up front. If you're very sensitive to your monthly budget, you can easily take that down payment put it in a savings account, and draw from it on a monthly basis to cover the increased payment difference and not exceed your set monthly budget.  At the end of the day you're paying the same amount of principal (of course) by the end of the loan. It's just a question of paying a touch more interest in order to protect your capital by not making a down payment.