Should You Finance the Down Payment for a Car?
Are you considering buying a car and financing a portion of the cost? If so, it’s a good idea to have a down payment. But what if you don’t have enough money for a down payment? Can that amount be financed?
Is financing the down payment for a car a good idea?
Financing the down payment, possibly via a personal loan, is never a good idea. You will likely pay some interest on that small loan in addition to the larger loan you’re taking out for the car’s price. If you need assistance with a down payment in a pinch, you can ask a family member or friend for help – as long as they don’t charge you interest.
How much of a down payment do you need for a car loan?
There’s technically no set down payment amount you’ll need to obtain a car loan. However, the experts at NerdWallet suggest saving up to 20% of the car’s overall price for a new car and 10% for a used car. That’s a good rule of thumb, considering the higher the down payment you have for a vehicle, the better your odds of obtaining a loan from a bank.
Auto loan lenders like to see as much of a down payment as possible because more of the car’s cost will be covered up front. If your credit score and history are good enough, you may qualify for a zero-down auto loan, which requires no down payment. But your mileage will vary depending on the lender you’re applying with, which car you’re buying, your income, etc.
NerdWallet suggests shopping around for an auto loan just like you would with the car itself. By obtaining different quotes from various banks, you’ll ensure that you’re getting the best rate. If you don’t want to do the leg work, you can always apply at the dealership you’re buying the car from and have the salesperson find the best rate.
Ways to save up for a down payment
If you’re planning to save up for a down payment on a car, here are a few tips to help you get the money that you need:
- Limit unnecessary spending: Sure, we all love to go out to eat, but is it essential? No, the money you’ll spend on take-out food or anything unnecessary can quickly go toward your down payment for a car.
- Set up a savings account: It’s a good idea to have a savings account in general, but opening one up to save money for a down payment is a good idea. Once you have a savings account, automate regular contributions to it every month or every week.
- Sell your current car or trade it in: You can sell the car you currently have to get a sizeable down payment or trade it in for the vehicle you want instead of a down payment.
- Pick up a side hustle: If you need more money, you can pick up a side job to grow your savings.
No matter which method you pick to save money for a down payment, the key is to be consistent over time. With enough time and effort, you’ll have enough money for a large down payment or even the cost of the whole car.
Either way, don’t finance the down payment. You may pay a lot more for a car than you need to due to interest fees.
