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How does a down payment affect my car loan?
I was thinking about putting a down payment on my car, but I'm not sure if I should. How will this affect the car loan?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
When you make a down payment on a car loan, you are essentially lowering the starting balance on the loan. So if the car you want is $30,000 and you put down $6,000, you only have to pay the remaining loan balance of $24,000 with interest. In addition, some lenders will also lower your interest rate because you made a down payment. Lenders see this as less risky and they adjust their rates accordingly.
Other benefits of making a down payment include:
- Less interest paid over the life of the loan
- Lower monthly payments
- Offsetting depreciation when you drive off the lot
And one of the other benefits of making a down payment is that you won’t have to pay for full coverage auto insurance for as long because you shorten the length of the loan (so long as you pick a shorter term).
Still, you will need full coverage for the length of the loan, so shopping around for car insurance rates is a no-brainer. Download the highly rated
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app to compare quotes and get the best price for your car insurance needs.View full answer
- Gregory R.
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