New Car Loans

When buying a new car it can be difficult to determine exactly how much money you will need to put down on your new car loans. Different lenders offer different options based on the vehicle, your credit and the amount you intend to borrow verses the amount you intend to put down. All of these factors can affect the terms of the loan including the length and the interest rate, and how long it will take for you to build equity. So how much money is enough to put down while still getting the best terms available to you?

As much as you can is the obvious answer, but more specifically you should put down 20% of the loan at the time of payment. Why 20%? Easy, that pays for the depreciation of the vehicle when you take possession. By doing this you are not considered "upside down" on your loan. Being upside down on your loan means you owe more on it than it is currently worth. This is never a good position to be in, especially if you are forced to refinance, trade in or sell your car, before you become right side up. In essence you have to pay money to get rid of your vehicle. As your ownership of the car goes into the second and subsequent years you are building equity in your vehicle.

The less money you put down the longer you will remain upside down on your loan. For new vehicles it isn't quite as worrisome to be upside down for a year or two, but it is never a good idea to be upside for a long period of time. If at all possible you should maximize the down payment when buying a new car. This keeps the vehicle appreciating at a decent rate and keeps your interest rates and payments as cheap as possible. Buyers who remain upside down on car loans for long periods of time are taking a risk.

Typical buyers in this day and age put roughly 5% down on the purchase a vehicle. This amount covers the tax and license fee, and that is about it. If you find yourself in this situation you need to do whatever you can to get out from your upside down loan as quickly as possible. The best way to get out from an upside down loan is not to trade or sell the car (unless you get a once in a lifetime deal) but to keep the vehicle as long as possible. The longer you keep the car the better chance you have to build equity in it and get your money out of it. If you keep the car until it is paid off then you own more than you owe.