topic Re: What is considered a GOOD down payment? in Auto Loans

What is considered a GOOD down payment?

whaddupmia07 — Wed, 24 Feb 2016 00:23:30 GMT

Hello Everyone!

I am looking to buy a new car within the next few months. The price of the auto loan will be between 23-26K, I think. I am completely new to buying a new vehicle so I was wondering what a good down payment on a 26K car is. I am planning on selling my current car for around 3K and using another 1K from personal finances for the down payment. So total would be 4K down. My current score (according to Credit Karma, I haven't pulled Fico yet) is 721 and annual income is 45K. If anyone could answer this for me that would be appreciated. Thanks!!

Re: What is considered a GOOD down payment?

Anonymous — Wed, 24 Feb 2016 04:39:19 GMT

Anything is a good down payment. The purposes of a down-payment is to help keep you from being upside down on a loan and keep your monthly payments lower. Supposedly a good rule of thumb is 20% but in actuality that means nothing. Some lenders may require a certain down payment to keep the loan to value ratio under control. My new FRS. I just purchased I could have put 0 down and finance about 22000 instead I put down around 2000 and financed 20000 to keep my monthly payment at 330. Different lenders have different req. Get an approval before you go to any dealer. The approval amount should be fine as I make the same and was approved for 33k. I used dcu and I recommend you looking into them. Find your fico scores, if your equifax Fico 5 is above 675 I very very very much so recommend dcu.

Re: What is considered a GOOD down payment?

Anonymous — Wed, 24 Feb 2016 06:11:49 GMT

I wouldn't put any down payment when buying a car if u can get loan without down payment.. Instead get the gap offered by ur insurance company which is cheap and u don't need to worry about car being upside down. Buying a new car u will always lose money on car. So why out your hard earned money for down payment. If you can finance it at 0-2.9% depending on which brand and type of car it's best to put nothing down and buy gap through your insurance company. How gap work is let's say u owe 35000 on ur car and ur car is now only worth 29000 u get into an accident and car is totaled ur in the hole for 6000 cause ur insurance only pay 29000 for what car is worth but u owe 35000 now with gap gap will pay rest... So why put a down payment to cover the negative in a car loan?? If u out the down payment u would of lost the 6000 which can be covered by gap

Re: What is considered a GOOD down payment?

C7LT1 — Wed, 24 Feb 2016 09:23:23 GMT

I am not saying others advise is wrong, I just have a different view point.

New Car Purchase:

Remember new cars depreciate a lot faster then used soooo....

Put at least 10% down, pay TTL out of pocket and skip the GAP insurance. This is of course after you get the best price possible.

Always make extra principal payments when you can. This combined with a good downpayment will ensure you are every upside down.

Remember the less you finance the lower your monthly payments will be and the less you will pay in interest even if you rate of 0.9%.

Used Car Purchae:

If you buy at market value the same as above applies however if you find a great deal well below market value the finance the whole thing.

Ex. in 2011 I brought a used 2010 Nissan Alitma Coupe and I financed 100% of the cost to include TTL and a 100k warranty. My OTD cost

for everything was $17.5K. The car book value was $20k at that time. No gap and was never upside down.

One more point:

Having Gap will not help if you decide in 2-3 years you want to trade in your car for something else or you lose the ability to make the payments

and you have to sell the car to get something cheaper.

Re: What is considered a GOOD down payment?

StartingOver10 — Wed, 24 Feb 2016 13:09:51 GMT

@C7LT1 wrote:
I am not saying others advise is wrong, I just have a different view point.

New Car Purchase:
Remember new cars depreciate a lot faster then used soooo....
Put at least 10% down, pay TTL out of pocket and skip the GAP insurance. This is of course after you get the best price possible.
Always make extra principal payments when you can. This combined with a good downpayment will ensure you are every upside down.
Remember the less you finance the lower your monthly payments will be and the less you will pay in interest even if you rate of 0.9%.

Used Car Purchae:
If you buy at market value the same as above applies however if you find a great deal well below market value the finance the whole thing.
Ex. in 2011 I brought a used 2010 Nissan Alitma Coupe and I financed 100% of the cost to include TTL and a 100k warranty. My OTD cost
for everything was $17.5K. The car book value was $20k at that time. No gap and was never upside down.

One more point:
Having Gap will not help if you decide in 2-3 years you want to trade in your car for something else or you lose the ability to make the payments
and you have to sell the car to get something cheaper.

Totally agree with the above 100%

Just because you can get a vehicle with zero down, doesn't mean it is a sound financial decision for the long term. Give yourself options. If you aren't upside down, then you have options if life hits you with lemons down the road.

Re: What is considered a GOOD down payment?

Anonymous — Wed, 24 Feb 2016 14:07:05 GMT

Fwiw my first comment did state the exact purpose of a down payment. The Only time a down-payment matters , assuming gap, is for resale value. If you plan on keeping this car forever, down-payment doesn't matter beyond it being a method to keep your payment lower. This matters more at higher interest rates, but less the higher the score. OP seems to have a healthy score and will likely secure a nice rate. They're also planning to buy quite the car for their income, so I do hope you plan on keeping that as it is.

Make sure you educate yourself on car prices, don't overpay, use research websites, don't sell the car for at minimum a year(which if your going to sell a car in a year, don't buy it so this should go without saying) and you should be fine. Your other car alone would be plenty for a down payment assuming you don't buy a car with horrible depreciation like a dodge dart.

Re: What is considered a GOOD down payment?

whaddupmia07 — Thu, 25 Feb 2016 19:22:30 GMT

@C7LT1 wrote:
I am not saying others advise is wrong, I just have a different view point.

New Car Purchase:
Remember new cars depreciate a lot faster then used soooo....
Put at least 10% down, pay TTL out of pocket and skip the GAP insurance. This is of course after you get the best price possible.
Always make extra principal payments when you can. This combined with a good downpayment will ensure you are every upside down.
Remember the less you finance the lower your monthly payments will be and the less you will pay in interest even if you rate of 0.9%.

Used Car Purchae:
If you buy at market value the same as above applies however if you find a great deal well below market value the finance the whole thing.
Ex. in 2011 I brought a used 2010 Nissan Alitma Coupe and I financed 100% of the cost to include TTL and a 100k warranty. My OTD cost
for everything was $17.5K. The car book value was $20k at that time. No gap and was never upside down.

One more point:
Having Gap will not help if you decide in 2-3 years you want to trade in your car for something else or you lose the ability to make the payments
and you have to sell the car to get something cheaper.

Acronyms kill. Is TTL taxes and licensing? So are you saying put 10% down PLUS the TTL? I did the new car taxes, fees, and licensing estimate on the CA DMV website which indicated about $2300 for my particular vehicle. So 10% PLUS TTL would be around 5k out of pocket, sound right?

Re: What is considered a GOOD down payment?

Chris679 — Thu, 25 Feb 2016 20:18:59 GMT

Only good down payment is the trade in IMO. Anything else you can accomplish the same thing by paying down on the loan giving you an added cushion if something comes up. Take that $5000 or so, pay down the principal of the loan right away if you want. Now you are maybe a year ahead on the payments. Also you have lowered the % owed on the loan helping your credit score. No need for gap insurance if you don't take out a longer loan than you can afford, 60 mo max.

Re: What is considered a GOOD down payment?

C7LT1 — Fri, 26 Feb 2016 02:43:26 GMT

Acronyms kill. Is TTL taxes and licensing? So are you saying put 10% down PLUS the TTL? I did the new car taxes, fees, and licensing estimate on the CA DMV website which indicated about $2300 for my particular vehicle. So 10% PLUS TTL would be around 5k out of pocket, sound right?

Yes "TTL" is Taxes, Title and licensing. Yes in my opinion put at least 10% down PLUS pay TTL out of pocket. So in your case it would be around $5k out of pocket. I am glad you looked up the fee per your DMV website because a lot of people neglect to figure those cost into the total price of the vehicle. Good job on your research!

Re: What is considered a GOOD down payment?

Anonymous — Fri, 26 Feb 2016 04:20:29 GMT

The short answer to your question is whatever you can comfortably afford. You're going to get people saying large down payments, small down payments never finance a car just buy it in cash.
Understand that a down-payment is just there to keep your monthly payment/the amount you finance/loan to value in check. Play with bank rates calculators. Know your car price. The above scenario where you get a car 2.5k under the book value WITH warranty and taxes included before paying anything down just isn't realistic. I'm sure that he got a golden deal on that and good for him, that's not something most/anyone can expect. Most people are upside down. *****BEING UPSIDE DOWN ONLY MATTERS IF YOU RESELL THE CAR*** Gap is very very very muchso worth it(not from the dealer) your lender will likely chArge less for gap. Generally between 2-400. THAT is your safety net in being upside down. If you think you aren't gonna keep a car long term, just don't buy it. Boom. There you go. No longer matters if your upside down. It's an ugly and scary word that doesn't matter of you keep the car and like it. Buy the car you like.....and make sure you like it before you buy it.

Re: What is considered a GOOD down payment?

Anonymous — Sat, 27 Feb 2016 05:36:22 GMT

Some is saying gap doesn't work if you plan on selling your car in 2-3 years. So what's the point of putting a large down payment if you do sell the car in 2-3 years your going to take a lost on it anyways. Just putting a larger down payment you already covered your lost. If you plan on selling your car in 2-3 years go lease a car which is like renting. Monthly payment will be a lot lower than buying (financing). If u plan to keep your car for over 4 years and can get a reasonable rate for loan I'll say keep cash in bank and even if u lose your job and you didn't put 5000 down u can still make payment on car for a year. Now you put 5k down and u lost ur job ur **bleep** out of luck cause u ain't got cash no more. Why spend your own cash when u work hard to build ur credit? That's what credit is for so you don't always need to put cash up for things. Now if your credit is bad and get bad rate. I'll still finance as much as possible and when first statement come throw everything you can in it. It looks better with bigger loan.

Re: What is considered a GOOD down payment?

Gmood1 — Sat, 27 Feb 2016 17:06:26 GMT

I'm in the put a good down payment group. Yes you're out of said money now. That's also less you owe on the vehicle. I put down 40% on my last vehicle.
What that does is give me a small payment and keeps the vehicle right side up in value. It also allows me to save money over the life of the loan. Which in turn allows me to pay the vehicle off much sooner if I so choose.

No need for gap insurance if you owe less than what the vehicle is worth.

Re: What is considered a GOOD down payment?

C7LT1 — Sat, 27 Feb 2016 17:41:05 GMT

Life happens and normally when you least expect it. You want your car to be gift not a curse.

Re: What is considered a GOOD down payment?

elim — Sat, 27 Feb 2016 17:49:25 GMT

I think the next loan i use, I will put 0 down and put my down payment toward the loan on day 2. Give me a nice cushion and bring my instalment utilization down faster. Any downside?

I ran my down payment through a rewards card on my last purchase at the very last minute... no fee. No DP was required on the USAA loan.

Re: What is considered a GOOD down payment?

C7LT1 — Sat, 27 Feb 2016 17:59:27 GMT

@elim wrote:
I think the next loan i use, I will put 0 down and put my down payment toward the loan on day 2. Give me a nice cushion and bring my instalment utilization down faster. Any downside?

I ran my down payment through a rewards card on my last purchase at the very last minute... no fee. No DP was required on the USAA loan.

Nothing wrong with it just make sure you make a "prinical only" payment. This will save on interest but your payment is still be due next month. This is super easy with USAA.

Re: What is considered a GOOD down payment?

StartingOver10 — Sat, 27 Feb 2016 19:23:22 GMT

@elim wrote:
I think the next loan i use, I will put 0 down and put my down payment toward the loan on day 2. Give me a nice cushion and bring my instalment utilization down faster. Any downside?

I ran my down payment through a rewards card on my last purchase at the very last minute... no fee. No DP was required on the USAA loan.

I think it's an excellent idea especially in light of the installment loan utilization thread. Read this if you haven't already. I think it is very interesting from an installment loan POV

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Should-I-get-an-installment-loan/td-p/4383085

Re: What is considered a GOOD down payment?

Chris679 — Sat, 27 Feb 2016 23:42:33 GMT

@C7LT1 wrote:
@elim wrote:
I think the next loan i use, I will put 0 down and put my down payment toward the loan on day 2. Give me a nice cushion and bring my instalment utilization down faster. Any downside?

I ran my down payment through a rewards card on my last purchase at the very last minute... no fee. No DP was required on the USAA loan.
Nothing wrong with it just make sure you make a "prinical only" payment. This will save on interest but your payment is still be due next month. This is super easy with USAA.

A big thumbs down to the pricipal only payment. One of the big advantages of paying down the loan early vs a down payment is the flexiblity you gain with the payments. You can pay it off early if you like or you can just pay less every month and stretch the loan out the full term. Or if you are six months ahead and something comes up you can just not make a payment for 6 months. You're going to have to pay any interest that is due when you make a payment no matter what. You aren't saving anything with a princial only payment you are just losing flexiblity because you still owe the payments as usual. My CU doesn't even offer princial only payments because they only serve to help the bank get your money faster.

Re: What is considered a GOOD down payment?

Chris679 — Sat, 27 Feb 2016 23:46:28 GMT

@Gmood1 wrote:
I'm in the put a good down payment group. Yes you're out of said money now. That's also less you owe on the vehicle. I put down 40% on my last vehicle.
What that does is give me a small payment and keeps the vehicle right side up in value. It also allows me to save money over the life of the loan. Which in turn allows me to pay the vehicle off much sooner if I so choose.

No need for gap insurance if you owe less than what the vehicle is worth.

You can accomplish exaclty the same thing by financing the full amount then paying the loan down 40% right away. You have all the benefits you mentioned plus added flexibility becuase you are way ahead on the loan. It's better for your credit report, you can still pay off sooner or pay less per month and plus now you have some leeway in the loan if something comes up and you want to skip payments for awhile.

Re: What is considered a GOOD down payment?

C7LT1 — Mon, 29 Feb 2016 10:00:14 GMT

@Chris679 wrote:
@C7LT1 wrote:
@elim wrote:
I think the next loan i use, I will put 0 down and put my down payment toward the loan on day 2. Give me a nice cushion and bring my instalment utilization down faster. Any downside?

I ran my down payment through a rewards card on my last purchase at the very last minute... no fee. No DP was required on the USAA loan.
Nothing wrong with it just make sure you make a "prinical only" payment. This will save on interest but your payment is still be due next month. This is super easy with USAA.
A big thumbs down to the pricipal only payment. One of the big advantages of paying down the loan early vs a down payment is the flexiblity you gain with the payments. You can pay it off early if you like or you can just pay less every month and stretch the loan out the full term. Or if you are six months ahead and something comes up you can just not make a payment for 6 months. You're going to have to pay any interest that is due when you make a payment no matter what. You aren't saving anything with a princial only payment you are just losing flexiblity because you still owe the payments as usual. My CU doesn't even offer princial only payments because they only serve to help the bank get your money faster.

This is just wrong information. Flexiblity in a auto loan comes from have a nice emergency fund not from a down payment or paying down the loan early. If I did not have a fully funded emergency fund I would not be paying extra towards a auto loan. I would be saving the money towards my emergency. It's not a question of IF it's going to rain it's a question of WHEN. Being ahead a few months on your auto loan is not going to help much if you lose your income for 3-6 months. You still have rent, food, unitilities, etc. I'll take a nice emergency over being ahead on my loan any day. Remember interest on a auto loan is calculated on the prinical. The advantage of a princial only payment that you pay down the princial which reduce the amount interest pay over the life of the loan. It is true that a princial only payment does not replace your required monthly payment but in the end it saves you money. I love to save money where I can.

Put down at least 10% and pay TTL out of pocket. Finance the balance and make principal only payment when you can. You will pay the car all earlier saving on the interest in the process. Also, have an emergency fund to cover all of your expenses for at least 3 months. This is not the only way to proceed, its just me way.

Re: What is considered a GOOD down payment?

Anonymous — Mon, 29 Feb 2016 18:09:12 GMT

Confessions of a former (a long time ago) car salesman:

Down payments usually became additional dealer profit. We would take that money and use it to reduce the value of the trade-in or otherwise move money around on the deal to keep a significant portion, if not all, of the down payment. Sure, your loan papers would show the down payment amount but we usually really kept most of it. Here's how to avoid that trap. Go for a zero down deal all the way until they physically hand you the papers to sign the loan. THEN look at the form, look at the Finance Manager, and say: "On second thought, lets put $xxxxx (more) down payment on this. This should also somewhat reduce your interest rate because you just lowered your risk rating by the financier.