When it comes to getting a new car, there are a few things you should think about before signing on the dotted line. One of the most important things is determining your car budget. Finding out how much you should put down on a car before you head to the dealership is key.
What Kind of Down Payment Do I Need to Finance a Car?
As a general rule, the average down payment you need to finance a car is between 10-20% of the purchase price. When it comes to making a down payment on a new car, you will need to put down at least 20% of the purchase price. For a pre-owned or used car, you can pay as low as 10% down.
Buyer's Note: If you are planning to finance your vehicle, consider choosing a shorter loan term versus stretching it out. Though it can be tempting to stretch your car payments out for the low monthly rate, keep in mind that a longer loan term means more interest and more depreciation of your vehicle meaning less trade-in value when you choose to upgrade in the future. Try to keep your financing below 60 months (or 5 years), if possible.
Credit is Key
Much of your car financing will depend on where your credit score stands. When purchasing a vehicle, a credit score of 660 or above can get you a good car loan at a 6% interest rate or lower. It's a good idea to check your credit score before making a large purchase like buying a new vehicle. All car dealers will check your credit before offering you any finance options, so it's good to know your score before going into the dealership. You can check your credit score for free (without lowering it!) by using services like www.annualcreditreport.com or by contacting your bank directly.
Budget for Monthly Car Costs
When purchasing a new vehicle, it's important to not only budget for your initial down payment – but also, the monthly costs that come with it. You should aim to spend no more than 10-20% of your monthly income on your monthly car payment (this includes insurance, fuel, and maintenance expenses). However, every car buyer is unique with varying credit scores, finance options, debt to income ratio, and personal preference. Just make sure you can make the monthly payment to keep your credit score up!
If you're having trouble figuring out how much to spend on your next vehicle, our car experts are here and happy to help you calculate all new car expenses from monthly payment to sales tax and interest rate to down payment! We can walk you through the best financing options available to you and discover what vehicle fits best with both your budget and car needs. Stop into one of our Bob Penkhus showrooms today (virtually or in person) and we'll help you find what you're looking for!
- Your friends at Bob Penkhus