Big down payment

[Anonymous]

Is it smart to put a big downpayment? I guess the rule of thumb is 20% of the cost, but what if my car is totaled? Do I lose my down payment? 

I was searching and found this on a different website, which is what makes sense to me.

 "For example, if you puchase a car for $20,000 and put $4,000 down you paid $16,000. If the car is totaled and the insurance company pays you $16,000, you paid a total of $20,000. If you put nothing down and the car is totaled, you still pay $20,000. The $16,000 from the insurance company plus the $4,000 you did not give as a down payment. No difference."

Is this all there is to it? I'm not sure if putting 8-10k is the right move. I guess the only difference would be to have a lower m/payment. Any thoughts? 

[EddieK]

There will always be two schools of thought on this subject.  I'm on the side of put as much down as you can comfortably afford.  And it becomes even more important depending on what interest rate you qualify for.  Although I got a 1.74% rate, I put down 30K on an 80K car.  Putting little or no down on a depreciating asset only causes more problems if you want to sell or refinance in the future.

[Dcyphrz]

Not following what the amount financed has to do with your insurance coverage.  The characteristics of the vehicle loan are one thing and the insurance coverage, whether good or bad, is another.  Least that's as far as my thinking takes me.

[Anonymous]

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@Anonymous wrote:

Is it smart to put a big downpayment? I guess the rule of thumb is 20% of the cost, but what if my car is totaled? Do I lose my down payment? 

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http://ficoforums.myfico.com/t5/Auto-Loans/What-is-considered-a-GOOD-down-payment/m-p/4482405#M62771

[Anonymous]

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@EddieK wrote:

There will always be two schools of thought on this subject.  I'm on the side of put as much down as you can comfortably afford.  And it becomes even more important depending on what interest rate you qualify for.  Although I got a 1.74% rate, I put down 30K on an 80K car.  Putting little or no down on a depreciating asset only causes more problems if you want to sell or refinance in the future.

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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.

[EddieK]

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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.

[Chris679]

I'm of the opinion that the best down payment is no down payment.  You accomplish more by taking that money and applying it to the loan after the fact if you think that is the best use of that cash.  You gain all of the benefits of the down payment plus you are now way ahead on the loan.  I treat it as part of my emergency fund.  Also, because you are paying down a significant part of the loan this will help your credit score bounce back quicker from the new loan.

If the apr on the loan is high then I think it's best to pay off as soon as possible.  If the apr is low then I like to be 3-6 months ahead and that is plenty for me. 

[Chris679]

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@EddieK wrote:

There will always be two schools of thought on this subject.  I'm on the side of put as much down as you can comfortably afford.  And it becomes even more important depending on what interest rate you qualify for.  Although I got a 1.74% rate, I put down 30K on an 80K car.  Putting little or no down on a depreciating asset only causes more problems if you want to sell or refinance in the future.

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Ordinarily I would say that investing that 30k elsewhere would be the smart move but 2016 ytd isn't exactly helping my argument. 

[Dcyphrz]

I got a new vehicle in April last year (first brand new one since the mid-90s).  I wound up financing exactly $15K of a $32K purchase at 4.05% for 6 years.  Paid the last of it off in December.  Turns out, I should've just written a check for the truck and been done with it.  Cost me $270 in interest over 8 months. 

[Anonymous]

Ulitimately it is a personal finanical decision so there is no right or wrong way to go but my opinon is it depends.  If your credit is subprime and you have to take a high interest loan and think you will be stuck with that loan for a long time (cannot refinance once scores and credit is improved) then it probably makes sense to put a larger down payment to reduce your exposure to the interest.  This assumes that your higher interest debt is paid off though.  For many folks they can get 60-72 month financing for less than 3%.  Under those circumstances you probably shouldn't put down a big down because the interest charges for your loan over it's life will be minimal and it probably makes more sense to have the cash in the bank or an investment that earns some interest or can be used to avoid having to use high interest credit cards when emergencies arise.  On the issue of losing your down. Buying a new car ensures that if you total it or have it stolen within the first couple of years you will lose period.  You either lose your down or you lose by having to pay money out of pocket to pay the finance company because the insurance company will only pay fair market value plus tax and licensing for the car.  This is why many people buy GAP insurance that ensures that if you are upside down they will pay the difference.  Dealers mark these policies up and they are a source of profit for them.  As an example a dealership wanted 700 for a policy and my credit union gave it to me for 199.  One option you can employ is to insure the car with someone who provides a program like USAA, for about 10 bucks a year I pay for a additional benefit that provides an extra 20% over the fair market value of the car so they pay 120% to the finance company and anything extra comes to me. This is to help the customer have cash to put down on a new car.  Years ago we had a car stolen that was about a year away from being paid off.  We got most of what the insurance company paid out but it was still a huge loss because the car had depreciated a tremendous amount and had a ton of life left in it so we were forced to buy a car at a terrible time for us.  It is never a good time to total or have a car stolen, the customer always loses.