Lower your monthly payments by boosting your down payment

Getting a car loan that fits your current financial situation can be tricky, especially if you have low monthly income. If you need a car loan with payments that you can afford every month, there are two things you should consider before buying:

  1. A less-expensive car

This one seems obvious, but it’s important to consider it a rule rather than a guideline, if keeping payments low is your goal.

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In thinking of your vehicle purchase price limit as a rule rather than a guideline, you effectively tell yourself that you CAN’T buy a car above a certain price. The objective in doing so is to focus only on those vehicles and options you can afford. And remember, the final purchase price always will be higher than the negotiated price, once taxes and fees are factored in. Dealers often are able to “structure” many of those taxes and fees into the auto loan, which may increase your monthly rate, or the overall amount you end up paying for the vehicle.

It may seem painful, inconvenient or less fun to buy a vehicle that is within your price range, but the financial benefits of having payments you know you can afford may offer peace of mind that is even more desirable.

  1. Making a bigger down payment

The technique here is simple. Given a certain amount of money paid for a vehicle, part of it goes to an upfront down payment and part goes into “financing” or the loan that is structured to be paid on a monthly basis afterward. If the vehicle price is fixed and the down payment is increased, then there is less principal value of the vehicle to be finance. Therefore, a loan can be structured with lower monthly payments.

Seems simple, right? And yet, many people ask about it. In fact, Scott Rundle, the vice president of Direct Originations with RoadLoans, said that this is the #1 most often-asked question of RoadLoans customer support agents.

This method of lowering monthly payments is very powerful, but not very popular for the simple reason that many people often don’t have a large lump sum of cash on hand to make a large down payment, except in rare cases, like after receiving a sizeable tax refund.

Disclaimer: These statements are merely informational suggestions only and should not be construed as legal, accounting or professional advice, nor are they intended as a substitute for legal or professional guidance.


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