How Much Down?

Everything you need to know about down payments...

If you’re looking to get into a new vehicle, chances are you will need a down payment. I’m sure you have seen more than a handful of advertisements that offer “Zero Down”. Truth is, you can get zero down, if your credit is good enough. Typically a credit score of 720+ will do the trick. In 2012, only 53% of Americans had a credit score of 700+. So if you’re in that 47% below a 700 credit score, you will likely need a down payment.

So, how much?

There are many variables that determine your down payment. Depending on the finance company or bank you’re applying at, it can be determined by several factors.

  • Your credit history and score
  • Purchase price of the vehicle
  • Market value of the vehicle
  • Your monthly income
  • Your job time
  • How long you’ve lived at your house

All of these factors go into determining your down payment. I’ve usually found that 20% of the purchase price is a good number to start with. For example, on a $12,000 vehicle, you would want to have about $2400. Keep in mind that this isn’t a set number, but an estimation of what you may need.

Benefits of a larger down payment.

Another factor to consider is your monthly payment. Let’s look at how a down payment can affect your loan, and your monthly payment. Using the same $12,000 vehicle above.

Down Payment Loan Term Monthly Payment
$2400 (20%) 36 Months $266.67
$1800 (15%) 36 Months $283.33
$1200 (10%) 36 Months $300.00

As you can see, a larger down payment makes your monthly payments more affordable. A larger down payment also decreases the amount of interest you would pay for the life of the loan. Keep in mind that you will also have sales tax on that $12,000 (6.5% in Arkansas) and Full Coverage Insurance. Providing a larger down payment, eases the financial strain you could be putting on yourself every month.