Making the largest down payment your budget allows is the best way to go when purchasing a vehicle. Your credit may be so excellent that you are not required to make a down payment. However, there are a few benefits to making a down payment.
What is a down payment?
The initial payment made when you purchase a large ticket item based on credit.
1. Lower Monthly Payments
Lower monthly payments are the primary reason for making a down payment when you purchase your vehicle. Despite the loan term you agree upon with your lender, the less you finance, the lower your monthly payment will be.
2. Build Equity
In addition to lower payments, you can build equity in your new vehicle much faster when you finance with a down payment. The larger the down payment the better. Having equity built will benefit you, should you decide to trade in your vehicle during your loan term.
3. Minimize Depreciation
Another factor to consider when making your down payment is depreciation. Having a low or no down payment immediately puts you upside down on your loan. Meaning the vehicle is worth less than the purchase price once you factor in your finance term, finance charges, TT&L (tax, title & license), etc. Although Hondas are well known for retaining their value, you also have to consider what may happen should your vehicle be stolen or involved in an accident early on in your loan term. Since your insurance company will typically pay what the vehicle is worth, you may be left with little to nothing after your loan agreement is satisfied. You may even owe and have to roll over the debt onto a new auto loan. This will pose a challenge when it comes to getting back into another vehicle.
4. Save Money
Lastly, the more you put down the more you save. Not only do you minimize your monthly payments by making a down payment you also minimize the amount of interest you pay over the life of the loan which, when compounded can really add up. There is no such thing as a down payment that is too big. Your goal as a smart car buyer is to finance the least amount possible with the budget you have at your disposal.