Down Payment

If you're looking to get the best interest rate possible, if you have damaged credit or if you want to keep your monthly payments to a minimum, you're going to want to have available a sizeable down payment. It's important to remember that for every $1,000 you put down on your car, your car payment will be reduced by approximately $50 each month. Sometimes car dealerships promise to get you a car loan with little or no down payment. While this may sound appealing at first, you really need to ask yourself whether or not this is a good choice in the long run.

These days, the average down payment for an auto loan isn't much of a payment at all. A typical car buyer puts just 5 percent down. That often doesn't even cover the cost of sales tax and other fees, much less make a dent in the depreciation factor.

If at all possible, a buyer should plan on putting down at least 20 percent of the purchase price. With that much down, a buyer should begin to see positive equity about two years into a four-year loan, assuming the vehicle's kept in good shape.

Also remember that your down payment doesn't always have to be in the form of cash out of your pocket. If you have a car you're trading in or if the dealer or manufacturer is offering a rebate incentive, you can apply those towards your down payment requirement.

If you are trading in a vehicle, make sure you carefully examine the numbers and that the dealer is really giving you a good deal rather than playing with figures. Used car values are extremely subjective. One person's treasure is another person's junk. Value varies with condition, regional popularity and availability. Naturally, you'll want to know your trade-in's worth before you sell. Reference guides like Kelley Blue Book, the National Automobile Dealers Association (NADA Official Used Car Guide and similar cars in the classifieds are a good place to start.

If you still owe money on your trade in, your dealer may try rolling the balance of the trade into the new loan. Don't fall for it; this can wind up costing you dearly in the long run.

If a dealer is offering the choice between cash rebate or financing with low or zero-interest rates, the cash rebate is usually the better choice. Many consumers won't qualify for the low-interest offers. Unless you have perfect credit and unless the dealer is offering zero interest financing over the life of the car loan, taking the rebate and applying it towards your down payment will normally save you the most money.