by Andrew Rohrlich
If you're looking to purchase a privately owned car, one of the most important questions you will have is how much should you put down on a car. To help you make the best decision, consider this guide detailing how much money you should put down on a car when buying privately and the advantages of paying a larger down payment.
You'll also gain insight into other important considerations, such as additional ways to pay off your loan faster, the effects of bad credit on down payments, and whether you can purchase a car from a private seller with no down payment.
How Much You Should Put Down on a Privately Owned Car
How much to put down on a car depends on factors like your budget, your credit history and score, and the vehicle's condition.
Experts generally state that the best amount to put down on a car is at least 10% of the sale price, especially when purchasing a privately owned car. However, it's important to consider your personal budget.
The amount of your down payment will directly affect your monthly car payments and the total cost of your car over the life of the loan. If you don't have enough funds to make the average down payment on a car, you may consider other options, such as a private party auto loan from a finance company.
Your credit score also influences how much to put down on a car, especially if you want a car loan. If you have a good credit history and score, you have a higher chance of loan approval and competitive interest rates. This can help reduce your down payment.
Generally speaking, if you have a credit score above 700, most lenders will be willing to provide you with financing even if you don't have a large down payment.
Finally, you should also consider the vehicle's condition and negotiate the price with the seller if warranted. If the vehicle needs extensive repairs or is significantly older, you may want to reduce the down payment amount. In this situation, additional repair costs may be necessary to ensure the vehicle is safe, reliable, and compliant with local and federal laws.
Ultimately, how much money you should put down on a privately owned car depends on several factors and your individual finances. Taking all of this into consideration and saving up as much cash as possible can help ensure that you get a safe and reliable car at an affordable price.
The Financial Advantages of a Larger Down Payment
What if you have enough money to make a larger down payment? There are several financial advantages to this decision:
- More affordable monthly loan payments
- A shorter loan term
- Paying less interest over time
More Affordable Monthly Car Payments
Your total loan amount determines your monthly car payments, so a bigger upfront payment will lower monthly payments. This makes it easier to budget for your loan payments.
A Shorter Loan Term
A larger down payment might help you get a better financing deal from your lender, including a shorter term. When they see that you've put a large sum of money down on your purchase, they are more likely to offer attractive financing terms.
Paying Less Interest on the Loan Over Time
The larger your initial payment, the less you will owe on the remainder of the loan. This means you will likely spend less in total interest costs over the life of the loan. It also ensures that you don't end up upside-down on your loan — owing more than the vehicle is worth.
With all of these advantages in mind, it may be worth it to save for a larger down payment if you plan to buy a used car from a private party. The financial awards could be significant over time.
Other Ways To Pay off a Car Loan Faster
Making a larger down payment is an excellent step toward lowering payments and paying off a car loan faster. There are also three other simple ways to pay off your loan faster.
Pay More Than the Minimum Monthly Payment
Paying more than the minimum monthly payment allows you to pay more principal each month, which can help reduce the amount of time it takes to pay off the loan.
For example, if you add an extra $100 per month to your loan payment, you can pay an extra $1200 on your loan per year and possibly pay it off almost a year early.
Sometimes, a finance company may require that all additional payments apply directly to the principal first. You can check with your lender about additional payments and any restrictions on those.
Use Extra Money From Tax Refunds and Gifts
To make the most of extra money from windfall sources, prioritize how you intend to use the funds. Depending on the remaining loan balance and repayment terms, paying off portions of a car loan can immediately benefit you in several ways, including:
- Reduced interest costs
- Increased overall savings
- Reduced total repayment time
Using these funds may also improve your credit score by decreasing your debt utilization ratio, opening up opportunities for better loan terms.
Consider Refinancing Your Current Vehicle Loan
When you refinance your car loan, you are replacing your existing loan with a new loan with different terms and conditions. So refinancing your current vehicle loan allows you to get a new loan with a potentially lower interest rate, which can add up to considerable savings over time.
Another benefit of refinancing is that you may be able to extend the term of your loan, reducing your monthly payment. It also allows you to spread out the costs over a longer period of time.
How Does Having Bad Credit Affect a Car Down Payment?
What if you have poor credit? Bad credit can affect the type and amount of down payment you may be required to pay when financing a private party car purchase. You can often still get a loan for a car, though you may have to take a few extra steps.
You may have to pay a larger down payment than you would if you had good credit. You may also incur higher interest rates on your loan. Lenders view individuals with a lower credit score as riskier, so they charge higher interest rates to offset the risk of default.
Finally, you may face restrictions when attempting to secure financing for your car. For example, your lender may require you to put up collateral such as a home or other large asset. However, having bad credit doesn't rule you out from being able to get financing or saving up money to make a down payment.
Is It Possible To Buy a Car in a Private Sale With No Money Down?
Thankfully, it is possible to purchase a car in a private sale with no money down. It depends on the private seller's willingness to accommodate such a deal.
Depending on the type of car and condition, the seller may be willing to accept payments without any money down. In exchange, they may require that you have sufficient credit to take out a loan or lease to make payments.
So how can you buy a car with no money down? You should look for sellers who are willing to accept payment plans or seek a private party car loan from a financial institution. Another option you could consider is asking friends and family members if they would be willing to loan you the cash to put money down on a car.
Find Financing for a Private Party Auto Loan
Your financial situation and needs will determine how much down payment you need for a car you buy in a private party sale. A higher down payment may be beneficial if you have a good credit report and enough money saved.
When examining your options, you should also consider the costs associated with financing over time, such as interest. Making an informed decision will help you get the most out of your car purchase.
You can also use financing to get a down payment for private-party auto loans. Using a private-party checkout solution like Caramel provides access to tailored private-party auto loan options, giving you the funding you need to put a down payment on your next used car.
This article was written by Andrew Rohrlich. As a brand and product marketing expert, Andrew Rohrlich has crafted products, experiences and communications for household names like Gap and for multiple automotive technology businesses. For nearly a decade Andrew has studied automotive retail in depth from a customer point of view and aggregated the industry’s best research, thought leadership and know how to provide credible and important information to auto shoppers and sellers.
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