How much of a down payment do I need to buy a car?
A number of factors go into the car purchasing process. Shoppers weigh the benefits of different makes and models, different dealerships, and financing options. One question that many people ask along the way is, how much of a down payment do I need to buy a car? The answer to this question can be simultaneously simple and varied. We have put together a quick and easy guide explaining some of the more important things to consider when determining how much down payment you should make when purchasing a car.
The first thing you want to do is establish how much you can afford to spend on a car. Before you get wrapped up in make or model, you need to know how much is leaving your bank account every month to pay for it. If you buy more car than you can afford, you put a number of things at risk, including losing the car you just bought. So, you will need to sit down and figure out a monthly budget. Factoring in your income and other current expenses, how much is left for a car payment? This may seem like common sense, but you’d be amazed by the number of people that skip this step and just say, “if I couldn’t afford it, they wouldn’t have approved it.” This is obviously not the case, and is a trap you want to avoid.
Once you know your budget, then you want to determine your credit score. This will help you learn how much you can finance on your car purchase. Knowing how much you can finance gives you a better idea of the general price range of vehicle you can afford. There are a few places to check your score for free online. It is recommended that you get your score from all three major reporting agencies.
Next, you can start shopping. Bear in mind shopping is not the same as buying. You want to gather as much information as possible on as many vehicles as possible that meet the criteria you want in your next car. Start very broad, and winnow the choices as you go. It may be a good idea to put together a checklist of priorities ahead of time so you don’t get wrapped up in the experience. This is similar to having a shopping list before you go to the grocery store.
Once you have narrowed down your choices to the top two or three, it becomes time to start mapping out a forecasted payment schedule. This will give you a very real sense of how far your dollars can go. By taking the information you gathered checking your credit score, and meshing it with your monthly budget, you can pair that with the price of your top choices of vehicle you want. Take your monthly car budget, multiply it by the number of months you want to finance the vehicle, then subtract that total from the price of the car. The remainder is what you will need for a down payment.
That equation may seem oversimplified, but it is a great way to start. Once you have determined that initial down payment estimate, feel free to tinker with the numbers a bit. Have you maxed out what you can afford per month? Do you want to finance for five years instead of four? Did you factor in interest? These things and many more will all come into play before you actually purchase your vehicle, but determining your down payment should involve a closer look than just “how much money do I currently have?”
