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How Much Should a Car Down Payment Be?


The recommended down payment for a car has long been 20 percent. But an 11 percent down payment is now the national average. Here are the downsides to a lower down payment.
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Say I purchase a car for $30,000 and I put down 20 percent. I drive out the door and the car is totalled. The insurance company pays me $24,000. The car cost me $6,000. On the other hand, I put no money down, I drive off the lot and the car is totalled. The insurance company pays me $24,000. I need to then pay $6,000 to make up the difference. Once again the car cost me $6,000, No difference.
However, if I put no money down, I have $6,000 in the bank which I would not have if I had put the money down on the car. Ready cash can be useful.
Of course, a way around is to pay a bit for GAP insurance, say $200. I again buy the $30,000 car and put nothing down. I drive out off the lot and the car is totalled. Insurance once again pays $24,000 but this time the GAP coverage pays the $6,000. I am out of pocket the $200.
Wether one puts money down or does not put money down, the cost of the vehicle is the same. If possible, it is often best not to put any money down.
I know for most auto loans the majority of the early payments address the interest ... not much is used to reduce the principal. As noted by my co-host above, there are plenty of tools available to help you chart the amortization schedule.
If the beginning balance of the loan was $14K ($19K purchase price - $5K down payment), 17 payments should result in a current balance of less than $14K.
The other possibility is that the $19K was only the purchase price, and there were other taxes and fees added on before the down payment was applied. You should review your paperwork to see if this was the case.
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