Comparing Down Payments & Interest Rates
More lenders than ever are allowing customers to purchase automobiles with no down payment. In fact, it is not uncommon to hear car dealers offering this option to buyers. Fortunately, consumers are becoming more aware of the reasons to purchase a car with a larger down payment (or pay cash when possible). Today, interest rates are low with high-quality borrowers (e.g., those with a credit rating of 720 or higher) the option to purchase their vehicle with no money down and rates as low as 3.54 percent for three-year loans and 3.74 percent for as many as five years.
Automobile prices however, seem to be heading up meaning that if you are purchasing a vehicle with no money down, there is a good chance you are going to be paying $20,000 or more for a new car. Here is how your down payment can make a difference with a new car loan:
3-year loan - Auto Loan Amount: $25,000 - Interest Rate 3.54 percent - Monthly payment: $732.99: Over the course of the loan (e.g., 36 months), your new car will cost you $26,387.64. This figure does not represent your automobile purchase taxes, licensing and registration, or automobile insurance
5-year loan - Auto Loan Amount $25,000 - Interest Rate 3.74 percent - Monthly payment: $457.48: This option may initially be very appealing to a new car buyer. After all, the same car is costing almost $300 a month less than the same loan at a slightly lower rate. Not so fast, because over the course of this loan (60 months), you will pay $27,448.80; nearly $2,000 more in additional payments than the lesser term. In addition, this reflects a nearly $2,500 increase over the purchase price.
Considering your down payment
Making a down payment should mean reviewing the overall changes in your monthly payments as well as the "final" cost of purchasing your vehicle. Using the exact same numbers as listed above and showing a $2,500 down payment here is the difference in your final cost:
3-year loan - Auto Loan Amount: $22,500 - Interest Rate 3.54 percent - Monthly payment: $659.69: Over the course of the loan, your new car payments will add up to $23,748.84. This means that if you add your down payment, you'll be paying $26,248.84
5-year loan - Auto Loan Amount $22,500 - Interest Rate 3.74 percent - Monthly payment: $411.73: Again, this option looks more appealing to a new car buyer. After all, the same car is costing almost $160 a month less than the same loan at a slightly lower rate. Over the five years you are paying this loan, you will wind up making $24,703.80 in car payments. When you add your down payment ($2,500) you have purchased a $25,000 vehicle for $27,203.80.