The first time that you apply for anything that requires your social security number is the first step that you take towards building your credit history. Your credit history comes into play each time that you want to get a loan, including a loan for your first car or a mortgage for your first home. Not everyone has a long history of credit though. If you never borrowed money before or are a college student, you’ll likely have little to no credit history. That does not mean that you won’t qualify for a car loan, but it may change the down payment that you need to make.
What is a Down Payment?
When you apply for an auto loan, you apply for a loan that covers the total cost of the vehicle minus any money that you put down. You’ll then make payments to pay off the total balance on the loan and the interest charged on the loan too. The down payment that you make can range from a few hundred dollars or more than $1,000, and some lenders will let you borrow money without making a down payment first.
How Much Do You Need to Put Down?
The amount of money that you need to put down depends on how much you can afford. You’ll also want to think about the total cost of the loan and your future monthly payments too. Experts typically recommend that you put down an amount equal to around 10% of the purchase price of the car. If you buy a car for $15,000, you’ll want to make a down payment of at least $1,500. Some will let you buy a car with a much smaller down payment though.
Why Make a Larger Down Payment?
While you can put down a smaller amount and still get a great car, those with little or no credit history will often find it helpful to put down more cash. This acts as a security to your lender. It shows that you are serious about buying a new or used car and that you took the time to save up money for your down payment. Lenders will subtract this amount from the total amount that you need and may decide that you are less of a risk. Putting down a larger down payment can help you qualify for a loan you wouldn’t otherwise get.
How Can You Get a Down Payment?
Some people with no credit history or little credit history worry about how they’ll come up with the money to make a down payment. When you live paycheck to paycheck, it’s often difficult to put back enough money for a down payment. Now is a great time to look at your budget and decide where you can cut back. Cutting out just a few luxuries like cable television or subscriptions can help you come up with the cash that you need in a few months. You can also ask for a friend or family member to loan you the cash, and you can use a personal loan to make your down payment too.
Deciding What to Put Down
The biggest decision that you need to make is about how much cash to put down. When you put down more money upfront, you’ll save money over the course of your loan. Making a larger down payment means that you borrow less and that you’ll pay less in interest. As you borrow less, your monthly payments will be lower too. Spending more money upfront can give you more money each month that you can use for other bills.
Getting a car loan with little or no credit history is often hard because lenders aren’t sure whether to take a risk on you. Making a good size down payment shows those lenders that you are serious about your loan.
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