Why Make a Down Payment? Birmingham AL
What exactly is a down payment? And why do some think it’s a good idea? The term down payment is generally used when buying a big ticket item like a house or a refrigerator or a car. Because it’s a higher price point, it’s likely you are buying it on credit. The down payment is that first payment made when you agree to purchase that item. It may differ from the monthly amount you will owe. So why make a bigger down payment?
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So why make a bigger down payment?
1. Lower Monthly Payment
The more money you are able to put into a down payment, the less money your monthly payment will be. You may also get a better interest rate on the money you owe. You’ve likely heard it, but didn’t know if it was true. That is that the moment you drive your car off the lot it loses of its value. Okay, so it may not be the moment, but within a year it isn’t unusual for it to lose up to 25%. So, if you keep this in mind and add in fees like registration, sales tax and delivery, you could end up owing more than your car is worth. If you make a bigger down payment all those extras will be off-set.
2. Build Equity
Having Equity in your car gives you flexibility. Equity is the difference between the amount owed and the amount it is worth. In general, you are looking to build equity.
3. Minimize depreciation
Once you factor in finance charges, you may be in a position where your vehicle is worth less than your loan amount, this is called being upside down. Think about how it would play our if your car is stolen or totaled soon after you buy it. Insurance companies will typically pay you for what the vehicle is worth. This money will have to go to the loan. You will be left with little or no money or may even owe money.
4. Save Money
The more money you put down the less money you need to borrow with interest. And, your monthly payments will be lower. So, over the course of the loan you can save money.
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