AUTOMOTIVE LOANS ARE COMMONLY ACCOMPANIED BY A MINIMUM DOWN PAYMENT OF 20%. HOWEVER, THIS IS NOT A HARD AND FAST RULE AS SOME LENDERS OFFER FINANCING PLANS THAT ALLOW FOR FLEXIBLE OR LOWER DOWN PAYMENTS. HERE'S A LOOK AT WHY A DOWN PAYMENT IS NECESSARY, WHAT THE TYPICAL AMOUNT IS, AND HOW YOU CAN SECURE LOW-DOWN PAYMENT AUTO FINANCING.
1. THE PURPOSE OF A DOWN PAYMENT
When you take out a car loan, the vehicle you're buying serves as collateral for the loan. Having a down payment reduces the lender's risk, so they're more likely to approve your loan. A down payment also helps to lower your monthly payments while reducing the overall amount of interest you'll pay over the life of your loan. Additionally, if you owe more than the car is worth, a down payment can help bridge that gap.
2. TYPICAL DOWN PAYMENT AMOUNTS
The amount of your down payment depends on several factors, including your credit score, the price of the car, and the lender's requirements. Generally, a down payment of 20% of the vehicle's value is recommended. If you're buying a $20,000 car, this would mean a down payment of $4,000. However, as mentioned earlier, some lenders may offer financing plans that allow for lower down payments.
3. HOW TO GET LOW-DOWN PAYMENT FINANCING
If you're interested in securing low-down payment financing, there are several steps you can take. Start by shopping around for lenders that offer these types of financing plans. Additionally, improving your credit score can increase the likelihood of getting approved for a low-down payment loan. Lastly, consider purchasing a less-expensive car or buying a used car rather than a new one.
In conclusion, while a down payment is necessary to secure an automotive loan, it doesn't necessarily have to be 20% of the vehicle's value. Lenders often offer financing plans that allow for flexible or lower down payments, and there are steps you can take to secure low-down payment financing. Regardless of the amount of your down payment, always be sure to read the terms and conditions of your loan before signing on the dotted line.
