How To Decide The Down-Payment For A Car During A Car Loan

So there's no fixed answer to how much down payment you should make on a car. Before making a decision you should consider these factors -

1. The first is to check if you're buying a new car or an old one. And only make decisions if you are financially stable or if the finances are planned out.
   
   
2. The second is to check your credit score; if your credit score is low, then you should be prepared to pay as much cash as you can as a down payment. It would make it easier for the lender to give you the loan because no one wants a risky customer. But if your credit score is high, then it would be a lot easier to reduce your down payment and reduce your interest. So if your credit score is 670, your interest will range around 10% or more, but on the other hand, if your credit score is 850, you can get an interest rate ranging between 3%-6%.
   
   
3. The third is to compare lenders or banks and see who fits in your category the best. Each bank has its own business model. For example; Bank of India Car Loan has divided interest rates among people who are salaried and who are self-employed.
   
   
4. The fourth is the most important one. When you visit the showroom, you might be tempted by the fancy brand-new sports cars. But only make decisions if you are sure that you can fix your budget accordingly and if you can pay the down payment once you've taken the loan and as well as the remaining principal amount along with interest every month.
   
   
5. The fifth is the more money you pay as a down payment; the less your remaining principal amount will be. And it will also reduce the interest. So you'll have to pay less principal every month, and the interest will be lesser too. It will also reduce the loan tenure. For example:- If the loan tenure was 60 months (with full principal amount), then after making the down payment, it might get down to a 48-month term.

So what happens if you're unable to make a down payment?

If you can't make a down payment, the interest rate will probably be high. And you'll have to pay a large amount every month along with the high interest rate. And if you're unable to make those payments every month, your car will be seized, and your credit score will fall down, which will make it harder for you to borrow money or take any loan in the future.

To avoid all this, I've stated some points below on how to save money for your down payment -

Save : 

Keep at least a minimum amount of 20% of your dream car's actual price. So that when you'll apply for a Car Loan, you'll be able to pay the down payment. 

Plan your budget : 

Prepare a budget list, where you can plan all your expenses along with your personal expenses and cut down all the unnecessary expenses. 

Create a goal :

Make a goal list to at least cut down a particular amount of expense, so if the down payment is INR 500000, map out how many months it'll take to reach that goal.

Cut unnecessary expenses : 

Take a big pause on making unnecessary purchases on memberships, clothing, household items. Only buy things that are really necessary and are your needs.

Conclusion -

Plan out your money, budget, and expenses before making any decision. It is advisable to go for a down payment because it will not only make it easier to lower your principal amount, but it'll also help you to reduce the interest rate.

Also Read:- What is the tenure period of a car loan?