As someone whose first car was a $750 ’95 Geo Prizm with cigarette burns throughout the interior, I can wholeheartedly relate to the desire for a brand new car (or at least one that doesn’t look like a health code violation on wheels). In all honesty, though, cars are terrible investments that only decline in value, so it’s never worth overextending yourself financially to get your hands on a car loan.
Even so, it isn’t uncommon or necessarily wrong for people to commit to making car loan payments. However, that means like saving for a home down payment, it’s important to save up for an adequate car down payment if you decide to become indebted to a dealership or bank in the pursuit of a new ride. Find out how much to save below.
How Much Should I Save for a Car?
Lenders have different requirements surrounding how much you should put down on a car loan down payment. Some may only ask for 10 percent, while other might require a third of the vehicle’s value or more.
Why? It often comes down to your credit and how risky a borrower you appear to be. Generally, the worse your credit, the more money you will need to supply up front toward the purchase of your car — that is, if you can even get approved.
Your best bet is to ensure your credit is clean before attempting to get an auto loan. Then, turn to that magic number for your down payment goal: Twenty percent.
How Much Car Can I Afford?
How much you have to save to reach a 20 percent car down payment is going to depend on the value of the car you plan to buy. You can use an auto loan calculator to figure out monthly payments based on the amount you have saved for a down payment, interest rate and the total value of the car you have in mind.
For some frame of reference, however, here are the best-selling cars as of January 2013, their values and how much a 20 percent down payment would cost you:
Not quite your style? Here are some options with a little more flair:
Used Car Down Payment
Keep in mind, these numbers are based on new car values, but you certainly don’t have to buy a new car to get an auto loan; it’s just as possible to finance a used car purchase, and usually much cheaper, too. Considering that Investopedia reports a new car loses about 20 percent of its value as soon as it’s driven off the lot, buying used is generally a very smart financial move.
And remember, the more you pay up front, the less you’ll pay in total. It’s always tempting to stretch out a loan for tiny monthly payments, but all you’re doing is increasing the amount in interest charges you pay in total.
Have patience, save up that 20 percent down, and you’ll have a sweet ride and fat wallet for years to come.