Is it worth making a large down payment on a new car?
Posted on March 6, 2019
One common misconception we hear a lot here at Car Nation Canada is that you need a significant sum of money to make a down payment when buying a new car. The more you put down, the lower the interest rate on your car loan. This is not always true. There can be advantages to making a larger payment but it doesn’t always have to be that way.
Advantages of a larger down payment when buying a car
There are some advantages to making a larger down payment:
- A large payment reduces the amount of your car loan
- It reduces the monthly payment.
- It reduces the total amount of credit on your credit score.
- It can reduce the term of the loan
- It can help with credit approval if you have a low score.
- It shows commitment to the loan to the creditor during the approvals process.
Depending on your circumstances and how much you are planning to borrow, these advantages can make a big difference to your loan or a small one. If you have a good credit score and can easily afford the loan, these advantages may not be as influential as if you are closer to your payment limit.
Disadvantages of a larger down payment when buying a car
It isn’t all good news if you think you need to make a larger down payment on a car.
- You lose driving time while you’re saving.
- It doesn’t always reduce the interest rate.
- It takes a bite out of your savings.
- You may reduce your access to emergency funds.
Unless you have a lot of disposable income, it will take you a little while to save up that down payment. That means longer in your old car and being subject to inflation. Depending on your loan, you may not get a better rate with a higher payment. If you’re using your savings, once it’s gone, it will no longer be there for rainy days or emergencies.
There is no ‘right’ answer to whether it is worth making a larger down payment on a car. It all depends on your personal circumstances. What you need to know is that a larger down payment is not necessary for buying a car as we work with all types of client in all circumstances.
If you would like to discuss your options, visit your local Car Nation Canada dealership today. We would be happy to help!