Benefits of a Down Payment

When you buy a vehicle from Herrin-Gear Chevrolet in Jackson, MS, you may want to think about making a down payment. This small percentage of the full price means more money out of your pocket when you’re trying to save cash during financing, but paying it also offers many benefits.

If you have poor credit or no credit, you may find it difficult to get an auto loan. Lenders think that you’re a poor risk for money because they’re afraid that you’ll stop paying at any time. They then have to cope with the loss of income from you plus the time and expense it takes to repossess your vehicle. Once you make a down payment, that reluctance on the part of lenders disappears. You’ve suddenly added your financial stake to the equation, making it less likely that you’ll walk away from your obligations. They’re then more likely to approve your car loan.

Interest is what you pay lenders to divide the total price you owe into manageable monthly installments that stretch out four or five years. It provides them with profit but gives you no material advantage. So, you want to keep your total interest cost to as low an amount as possible.

When you make a down payment, you pay less total interest because the amount financed is lower. Using the previous example again, your total interest cost with the $30,000 loan and no down payment reaches $2,192. When you put down $6,000, your total interest cost goes down to $1,754.11

One another effect that a down payment can have on your interest is a lower Annual Percentage Rate. Lenders are willing to give you a break on interest because you’re putting some money in and the loan-to-value ratio, or what you owe versus the value of the car, is lower.

The vehicle you buy loses its value the second you drive it off the lot. New cars can lose from 25% to 35% of their worth in the first year. Your loan may end up being upside down, meaning you owe more on the loan than the depreciated value of the car. This can prove to be a problem if you want to sell your vehicle for cash, trade it in for a new model, or it is totaled and you put in for compensation. The money you receive will not be enough to pay for the loan. Putting in at least 20% takes care of this issue by compensating for the loss of depreciation.

As much as you want to take advantage of a down payment, you may just not have the money to afford it. You can counter that problem with the following options:

• Go for a cheaper car. You may be able to afford the model you want if you take a lower-level trim. If you want certain features for your drive, see if you can find a less expensive model that has those features.
• Buy gap insurance. If your car is totaled, this coverage will compensate you for the difference between what you owe on the auto loan and what the car is worth.

If you have any questions, please contact the Finance Department at Herrin-Gear Chevrolet for answers. You can calculate how your estimated monthly installments change with different down payments through our online Payment Calculator. If you want to know how much vehicle you can afford, fill out our no-obligation online Finance Application. You can then confine your shopping to models that meet your price range.

At Herrin-Gear Chevrolet, we aim to get you the Chevy that you want. Don’t hesitate to reach out with any questions about financing, inventory, or anything else that you might be wondering about when it comes to the car buying process!