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Is a Down Payment Required for a New Car?

Surely you have seen a heard a car dealers' advertisement for "zero money down" offers. Those sound great, but the reality is that only consumers with super high credit scores will be able to qualify for such offers. When you have less than perfect credit, the lender will often require a down payment. So, how much will you need?

Special Financing Auto Loans and Down Payments

At Canada Auto Loan, we have assembled a large network of dealers and lenders throughout the provinces and territories. They are willing to look past your credit difficulties and approve you for an auto loan as long as you meet their other requirements. And usually one of their conditions is a down payment.

Down Payment Required

Every lender is going to have different requirements, so we can't tell you exactly how much money down you will need. However, because of our years of experience with special finance auto loans, we can tell you that the minimum industry standard for most lenders is either 10 per cent of the value of the car or $1,000 - whichever is less.

Also remember that your down payment can be in the form of cash, trade-in equity, or a combination of the two. You can get a general idea of the value of your current vehicle by consulting Canadian Black Book or VMR Canada.

The majority of car buyers see a down payment as an annoyance or a hindrance, but you shouldn't view it as such. Rather, you should see it as something that provides numerous benefits and will be extremely advantageous.

The Benefits of Having a Down Payment

Lenders may only require a 10 per cent or $1,000 down payment, but financial experts say more is always better. Their go-to figure is 20 per cent. Why? The more money you are able to put down, the more you are helping yourself out as a buyer. Here are a few advantages that a down payment can provide:

  • Gets You Approved
    Auto lenders have to assume a lot of perceived risk when they approve a consumer with less than perfect credit. This is why they still have certain requirements an applicant has to meet. Having a down payment could literally be the difference between you getting approved or being denied.
  • Offsets Deprecation
    New or used, any vehicle that you buy will depreciate in value over time. Imagine that you make a $1,000 down payment on a $15,000 car purchase, but that car loses 15 per cent of its value during your first year of ownership. You would owe more money on your loan than the car has value, meaning you have negative equity. If your car were to be stolen or totalled in an accident, you would be responsible for the difference between the loan amount and the value of your vehicle (unless you have GAP insurance). If you wanted to sell your car before the loan was paid off, you would still be personally responsible for any discrepancy between the remaining loan amount and what you get for the car. Making a large down payment will help you build equity in your vehicle quickly so you can avoid these complications.
  • Saves You Money
    By providing a down payment, you can save yourself some money over the course of the loan. For every dollar you put down, you reduce the amount that you will need to finance. This can help you lower your monthly payment amount, or even allow you to shorten the loan term without putting too much of a strain on your monthly budget. If you shorten your loan term, then you can save even more money on interest charges over the course of the loan. A large down payment could end up saving you a lot of money.

Saving up cash for a down payment can be tough for consumers who are operating on a tight budget. If you can wait, it might be beneficial for you to prolong your purchase for a few extra months to save up.

Find Financing Fast

No matter what your credit circumstances may be, or how much you have for a down payment, Canada Auto Loan can help you get connected to the resources that can get you approved for an auto loan.

Our service is completely free and applying is easy. All you need to do is complete our no-obligation online application and we'll get to work for you. Start today.