Down Payment. It is a concept many people completely ignore when purchasing a vehicle, despite the fact that making a down payment can have a significant impact on your monthly car loan payment. Depending on the length of the loan and the interest paid, making a down payment can save you thousands of dollars over the life of the loan. By simply keeping this concept in mind, you will be better equipped to make the best decision possible when determining the type of car you can afford.
When considering how making a down payment will affect your monthly auto loan payment, the first step is to understand that an up-front down payment, plain and simple, reduces the size of your loan. The more you pay up-front, the less you will have to pay each month – and the less in interest you will have to pay. The mistake most people make is that they let the “apparent size” of numbers deceive them.
It is also important to remember that the longer the term of your loan, the more of an impact your down payment will have on the total amount of interest paid. The longer the payment period of a loan is, the more spread out the payments are. Don’t be fooled when you make a down payment and it does not reduce your monthly payment by a large amount: it will still have a big impact at the end of the loan. The reduction on a per month basis seems smaller when the loan is longer. Do your best to take a smaller loan. Your interest savings are compounded over the term of the loan.
Another important factor that greatly impacts the effect of making a down payment on your auto loan is the interest rate. The higher the interest rate that you are paying on your loan, the greater an impact the down payment will have. Reducing the loan amount when the interest rate is high will generate you greater savings. This is true regardless of the term of your car loan.
Always keep in mind the interest rate and length of your auto loan when purchasing a new or used vehicle. Doing so will change your perspective on car dealers that try to add little extra “items” to the end of your loan. Small numbers, compounded over a long time, end up generating large numbers. By simply making a down payment on your car loan, you can save a lot of money in the end.
Check with CarLoanMarket.com to see how your down payment can help with your loan. Get your FREE, No Obligation car loan options through our lender or dealer affiliates. Fill out our credit application now!