Benefits of a Down Payment

If you’re in the market for a new or used vehicle, it’s important you understand the amazing benefits of a down payment. While most experts suggest you put down around 20% of the value of the vehicle, any amount you can put down can be instrumental. Don’t have a cash down payment?

No problem. You can trade in your current vehicle, which will act identical to a down payment. Let’s take a closer look at some top benefits of a down payment at Jessup Cadillac.

Save Money by Using a Down Payment

Although this may seem counterintuitive; the bigger your down payment, the more money you could save. To state it a different way, the more money you put down, the less you’ll need to borrow. And when you have a smaller loan, you’ll pay less interest over the life of the loan, which means your total interest costs will be lowered.

Pay Less Interest

Here’s how: if you purchase a vehicle that costs roughly $30K and has an interest rate of 4.5%, you would pay around $3,557 in interest over the life of the loan. However, if you met the 20% down payment suggestion — around $6,000— on the same vehicle, you would pay only $$2,845 in interest over five years.

Get a Lower Interest Rate

Another way using a down payment can lead to savings is through lower interest rates. This is because your overall loan-to-value (LTV) will be less, which can make you more attractive and less risky to lenders. The loan to value is simply the amount you borrow vs the value of the vehicle. When you use a down payment, you will lower your LTV, which reduces the exposure a lender has and can lead to lower interest rates.

Increase the Likelihood of Auto Loan Approval

If you have less-than-perfect credit, no credit, or bad credit, a down payment could be the solution you need for auto loan approval. On one hand, using a down payment shows the lender you have “skin in the game.” On the other hand, a down payment reduces the risk that you’ll default on the loan, which means they will repossess it.

Slash Your Monthly Payments

Without a doubt, one of the top benefits of using a down payment is it can lower your monthly payment by reducing the total amount you need to finance. Using the same vehicle as above ($30K and had an interest rate of 4.5%), your monthly payments would be around $560 on a five-year loan.

However, if you put down $6,000, you would only need to borrow $24,000 for five years. And your monthly payments on the $24k would be considerably lower at $447 — saving you a whopping $112 bucks a month.

Prevent from Being Upside Down on a Vehicle

One major upside to using a down payment is to prevent being “upside-down”. Being upside down or having negative equity means you owe more on the vehicle than it’s worth. Negative equity is primarily caused by depreciation. On new vehicles, as soon as you drive it off the lot, it takes a considerable hit in value, which is depreciation. Most new vehicles will lose around 25% of their value in the first year and an estimated 15% subsequent years until it plateaus.

If you do not make a down payment, you will be upside down the moment you drive your new vehicle off the lot. As long as you keep the vehicle, being upside down isn’t a big deal. However, the moment, you look to trade it in, you could be staring down a significant loss.

Another key consideration of negative equity is if you are in a vehicle accident that results in your car being totaled. If this happens and you are upside down, you will be responsible for paying the difference (unless you have Gap Protection on the vehicle).

You Can Opt for a Shorter Term

A substantial down payment can also open the door to a shorter term. When you choose a shorter term, you’ll save more in interest charges and further reduce the likelihood of having negative equity. However, shorter terms typically mean higher monthly payments. Using a down payment can help you unlock the enticing attributes of a shorter term while keeping your monthly payments within your comfort zone.

Contact Jessup Cadillac Today

If you’re in the market for a new or used vehicle, the team at Jessup Cadillac can help. We are home to a massive inventory of premium Cadillac vehicles as well as high-quality used vehicles from all manufacturers. And we specialize in helping our customers find the best auto finance package. Whether you have a large down payment, small down payment, trade-in vehicle, or no down payment at all, we offer the financial solutions to help. Simply put, we strive to help you find a vehicle you love at monthly payments you can afford.

Contact Jessup Cadillac today!

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