You can think of your down payment as buying power when you are in the market to buy a car. The down payment can affect the financing that you are able to receive, as the lender considers you more invested in paying off that vehicle as you have a sizeable amount already in it when you purchase the used car. A larger down payment can also save you money in the long run as the total amount financed is less than it would be with a minimal down payment. Your down payment calculates inversely with your monthly car payment; given the same interest rate and term, the monthly payment goes down when you can make a greater down payment at the time of purchase.
Even if you are living on a budget, you can take advantage of all the benefits by making a sizeable down payment. Saving a down payment will involve some planning, and discipline, but we assure you, the benefits are worth it.
1. Trade in Your Vehicle
If you have equity in a vehicle that you have financed, or have a vehicle that you own in the clear, trading in your vehicle at the time of purchase is like bringing extra down payment cash to the table. Rather than have an extra vehicle, you will also save money on insuring and maintaining your old car.
2. Sell Your Vehicle
You can sell your current vehicle as a For Sale By Owner (aka FSBO) to maximize your funds. Oftentimes if you do the extra legwork of reconditioning, marketing, and selling your vehicle yourself, you can benefit from an increased profit versus trading in your vehicle at the dealer. Your extra effort will allow you to bring extra down payment funds for the purchase of your next vehicle. However this option may not be best for everyone if you’re put off by the planning the vehicle’s detailing, writing up the bill of sale, and meeting with prospective buyers.
3. Use Your Tax Refund
Many consumers wait to make their larger purchases around their tax refund check. To make it easier for buyers we have Tax Max, a program that allows customers to bring in their tax paperwork, file their taxes at the dealership, and use part of their tax refund as their down payment.
4. Anticipate When You Will Need Your Car Down Payment
The more advance planning you can have for buying a car, the better you can budget to save for your down payment. We’ve all heard tips of ways to save a few extra dollars each day. Bypass the trip to the coffee shop and make your coffee at home. Pack a sack lunch of leftovers. Carpool a couple days a week to save gas expenses. These money saving measures are good, but most effective if you can give it some time to save money by making these cutbacks. In a week you may be able to save $50 by these efforts, but in two months you may be able to save $400!
5. Save Your Down Payment Funds in a Separate Account
Creating some money saving habits are great, but you will need to make sure that the funds aren’t spent on something else. Set aside the cash, or transfer the cash into a separate account, so that your down payment savings are out of site and out of mind, so they aren’t spent on anything except for your down payment.
6. Gather Items for Sale
If you have items lying around that have some value, now is the time to declutter, and get some more cash for your down payment. There are apps that make it easier to get money selling belongings that are collecting around your home, such as LetGo and OfferUp.
7. Plan Your Vehicle Purchase Around Your Pay Day
You may be able to find some extra cash in your paycheck to put towards your down payment. Take a look at where your pay dates fall and what bills are due when, and for how much. If you can plan your purchase for a paycheck after your other major bills are paid, you may find you can allocate a little more for your down payment than you thought.