How to Calculate a Down Payment on a Car

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A down payment is a necessity when you are financing a car. There is no way around it. Most banks and financial institutions have a minimum amount that they will take. That minimum varies, though, depending on your circumstances. Calculate how much of a down payment you can afford when you head to the dealership to buy your first or next car.

Determine how much you can afford to pay for a car

Materials Needed
  • Bills and receipts for monthly expenses
  • Calculator
  • Computer
  • Pay stubs
Step 1: Gather your bills and pay stubs. Calculate your total monthly income and your usual expenses.
Your usual expenses should include rent/mortgage payment, food, utilities, and any other regular expenses.
Step 2: Subtract your expenses from your income. This figure is the maximum amount you have to work with.
Step 3: Calculate how much owning a car will cost. Parking fees, car insurance premiums, gas and basic maintenance costs must be taken into consideration.
Car insurance premiums will depend on where you live, your age, your gender, your credit score, the type of vehicle you buy and a handful of other factors. You can go online to get an estimate on how much your insurance will cost, if you have some idea of what type of vehicle you plan to buy.
  • Example: If your car gets 30 miles per gallon, you drive 30 miles each day, and gas costs $3.00 per gallon, you will spend roughly $3.00 per day on gas.
Step 4: Subtract your estimated car expenses from the figure you arrived at on Step 2. This is the maximum monthly car payment that you can afford.
Be smart and reduce that number even more. You want to make sure you have a little extra money to go somewhere special from time to time.

Shop for your car

Step 1: Look at available cars online to get a good idea of what type of vehicle you want and what type of vehicle you can afford. Use a car payment calculator like the one at Carmax to help you find cars you can afford.

Figure out how much your down payment will be

Step 1: Multiply the total cost of the vehicle you want by the percentage you want to put down. You will have to put down a minimum of 10% under the best of circumstances.
That is, if your credit is extremely good and the bank thinks you are low risk. More than likely, though, you will have to put down at least 20%.
  • Example: A 20% down payment on a $25,000 car is $5,000.
Step 2: Plan to put down as much as you can. It will lower your loan interest rate and your car will cost you less in the long run because you are paying less in interest.
Try to put down as much money as you can afford. This will reduce your loan interest rate and the car will cost you less at the end because you’ll be paying less in interest.

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