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Benefits of Car Down Payments

No down payment advertisements are appealing to a lot of potential buyers because the prospect of putting up 20% of a car's purchase price can be daunting for people facing financial difficulties. However, having a car down payment will help save you a significant amount of money, and not just in the short term, but over the entire length of the loan.

With the cost of everything skyrocketing, including vehicles, and income growth remaining stagnant, consumers typically try to cut corners wherever they can. In this scenario, loan terms are being extended in an effort to make monthly payments more affordable, but this is doing more harm than we realize.

Why Are Car Down Payments Important?

A down payment makes lenders happy because it not only lowers their risk in extending you credit, but it also signals that you have an investment in the vehicle and don't intend to purposefully default on the loan. There are other reasons why this is a wise choice for you, including:

Car Down Payments

  • The depreciation rate for a brand new auto during the first year is about 20%. This is how the standard rate of a 20% down payment came about, and this compensates for the difference between what is owed on the vehicle, and it's actual value. A used vehicle does not need as large of a down payment to prevent a state of negative equity, and consequently the recommended down payment is 10%.
  • A car buyer who does not have a down payment is almost immediately 'upside down' in the loan, that is, owing more than the car is worth. This happens quickly because a higher percentage of the payment is directed towards the loan’s interest, and not the principal. Longer loan terms also exacerbate this situation by extending the period of repayment.
  • A down payment, while perhaps difficult to come up with initially, will save you money over the long term because your interest costs will be lower. This is especially important for individuals with bruised credit. Providing money down also result in lower monthly payments and the general rule of thumb, for a 60 month loan, is for every $1000 on the down payment, the monthly payment, depending on the interest rate, is reduced anywhere from $21 to $26 (the higher the interest rate, the greater the reduction).

When Your Credit is Damaged

At Canada Auto Loan, we know that many people are facing difficult times and have less than perfect credit. However, this does not mean you should not have safe and reliable transportation. Financial experts recommend saving up a few months for a down payment, while, at the same time, repairing and rebuilding your credit. If this is not an option for you, we may still be able to help you when you fill out our quick and secure application.