Should You Make a Down Payment When Buying a New Car?

Financing a new vehicle can often seem like a daunting task. But by learning more about the process, car buyers can approach it with confidence. So let’s get started!

A down payment consists of the cash you have on hand plus the value of your trade-in, along with any rebates you qualify for. The larger your down payment, the less you need to borrow. 

Our team at Mike Reichenbach Volkswagen of Florence is here to make financing simple. After compiling a list of FAQs that often stump car shoppers, we’ve provided the financing facts you need to know. Read on to learn more!

How Much Should You Give for a Down Payment?

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Because every shopper’s financial situation is different, the recommended down payment varies from one customer to the next. But there are some general recommendations that serve as helpful guidelines. Based on the car’s depreciation and the nature of auto loans, we suggest the following:

• NEW CARS: 20% of the purchase price — Putting down 20% of the vehicle’s price can help reduce financing costs and protect you from the dreaded first-year depreciation.
  
• USED CARS: 10%–15% of the purchase price — Because used vehicles have already experienced the most dramatic depreciation, a smaller down payment still yields significant benefits. 

When considering your down payment, be sure to think of it in the context of your total finances. Think about your savings account, emergency savings, and current debts – and then decide if it’s wise to make a large down payment. 

Take your credit score into account as well. If your credit score is low, making a larger down payment may help you qualify for lower interest rates.

Be sure to also consider your monthly budget. What monthly payment can you reasonably afford to make without knocking your budget off balance? Our handy auto loan payment calculator is a great place to start! Simply enter your desired monthly payment to estimate your buying power and view your options.

Our experienced VW Finance Team is here to help you find the right financing option and secure a loan that fits your budget. Come see us today to get started! 

What are the Advantages of a Down Payment on Your Auto Loan?

A down payment not only reduces the loan amount but gives the lender confidence that you’re a good candidate. Your down payment conveys your commitment to paying off your loan, even if your credit score is less than ideal.

While merely making the minimum down payment may land you a loan, keep in mind that a larger down payment comes with the following benefits:

• Improved chance of financing approval – A bigger down payment is often related to a healthier savings account, which proves to lenders that you’re committed to completing the loan.
• Lower monthly payment – If you can reasonably afford it, making a bigger down payment means that you have to borrow less – and therefore, pay less each month.
• Shorter loan term – Since a down payment reduces the overall amount you’re financing, it helps shorten the length of your loan.
• Reduced interest – The more you pay upfront, the less you’ll pay in interest over time. This is particularly helpful if you have a high interest rate. 
• Decreased loan-to-value ratio (LTV). This helps minimize the chance of ever owing more than the car is worth.  

Will You Need a Down Payment to Lease a New Vehicle? 

What about leasing a new Volkswagen near Sumter? 

Since leasing is basically renting, you do not build equity. Instead, your primary focus becomes maintaining your low monthly car payment.

Leases often do not require any type of down payment – but making one will lower your monthly payment. Simply pay the first month’s payment, a security deposit, the acquisition fee, and other fees and taxes. 

Is Cash the Only Way to Make a Down Payment When Buying a Car? 

To accommodate every customer, we offer plenty of options for making a down payment. Choose one of the following:

• Cash – Save money and use it to make the down payment. A check or debit card automatically generates a paper trail and appears on your bank statements.
• Trade-in – Trading in your old vehicle at the dealership can be a simple way to apply value directly toward your new vehicle.
• Combination of both – Maximize your down payment with a combination of cash and trade-in equity.

Enjoy Easy Financing at Your Local VW Dealership in Florence!

Our VW Finance Team is here to help you find a vehicle – and a finance plan – that’s the perfect fit. We believe financing should be simple and straightforward, so you can get back on the road fast!

Bad credit? No credit? We can help! Whether you’re a first-time buyer or have a complicated financial history, we’re committed to helping you secure a great deal on a new or used vehicle.

In fact, our car loan experts work closely with a network of trusted lenders to ensure you get the lowest rate and best terms available. 

Ready to get behind the wheel? Check out our new vehicle inventory online or stop by today for a test drive!

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