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How big of a down payment should you make?

How big of a down payment should you make?
 
A big step in the car buying process is deciding how to finance your new vehicle. Chances are, you’ll have to make a down payment with your purchase, as most people don’t have the cash to buy it outright. Read ahead for some down payment tips, as well as some guidelines for paying off your loan as quickly as possible.
 
How Big?
 
First off, you should always choose as big of a down payment you’re able to. A general rule of thumb is to make at least a 20% payment on your vehicle, but you should aim higher if you have the ability. Even if you feel you can afford the higher monthly fees by making a lower down payment, the amount you’ll pay in interest over the life of the loan will be counterproductive.
 
Dealing with Bad Credit
 
The weaker your credit, the more important it is that you make a higher down payment. Naturally, financial institutions are less willing to lend you money if they suspect you’ll default on the loan – so they typically force you to put a significant amount of money down to help offset their risk.
 
If you don’t know what your credit score is, or just want to check it beforehand for peace of mind, you can order a report online via Equifax Canada and/or Trans Union.  If you think that there are mistakes in the report, it’s important to notify the credit reporting agency right away.
 
Make sure you have the necessary cash in advance before going through the entire car-buying process. Nothing is more frustrating than spending all your time researching and finding a vehicle that you really want, only to find out that you can’t find a bank that will give you a loan.  Most dealership finance offices will be able to provide a pre-approval which will detail pre-approved guidelines for your finance amount, interest rate, payment and required down payment.
 
Even if you don’t have the money for a new vehicle, you can still buy an effective used one. It’s important that you look at all potential options, especially when your credit score is far from ideal.
 
Other Alternatives
 
If you’re adamant on making a lower down payment because you simply do not have the available funds, but are desperate for a new car, there are still ways to finance the vehicle without paying a high amount in interest.
 
The first is increasing your monthly payment.  If you can spare an extra $25-50 a month, that small increase can save you hundreds of dollars in the long run.
 
Also, if you don’t have the cash up front, you may be able to trade in your old vehicle to help lower the amount of your loan. Depending on the quality of your old car, you may not have to put down any cash, and can use the vehicle for your entire down payment.