In the times of ever-expanding world and fast-moving lives, traveling with comfort has become a major necessity for everyone. Today, everybody wants to reach his destination on time and in style. Maybe that’s why a car has become a commodity that one must possess. Thanks to the developed financing environment in the country, buying a car is not difficult. With the help of the down payment, you can have your dream car in your garage.
Buying a car on loan majorly involves two stages i.e. the down payment and the monthly payments. The down payment is the upfront amount paid to the dealer before purchasing a car. On the other hand, a car buyer has to make monthly payments to the lender.
The down payment is useful for the dealer as well as the car buyer. It acts as security for dealer and helps the car buyer in reducing the debt burden.
Deciding the Down Payment
Deciding the down payment might seem a tedious job but actually the factors governing the same are easy to understand and calculate. The lender considers the following factors before approving the loan amount:
· Credit Score
· DTI (debt to income) Ratio
· Financial History
· Debt Repayment History
If the lender considers you a less risky car buyer, he will approve you for a larger loan amount. It means you will be able to buy a car with a smaller down payment. Therefore maintaining a good credit score and a lower DTI ratio will encourage lenders to lend you more money.
What to do if the Loan Application is considered Weak by the Lender?
Do not worry if you do not have a good credit score or a strong DTI ratio. In such a situation, you will have to opt for a larger down payment. Here are a few options that can help you in obtaining cash for the down payment:
You can exchange your old car and get a discount on the new car. You should also check for discount offers and other schemes that the dealer provides for trading old cars.
Choose your desired car and try to save money till the time you are ready to buy the car. It will help you to avoid obtaining personal loan for the down payment.
Although being the least advisable option, borrowing from a friend or a family member can sometimes be the only way to arrange cash for the down payment.
· Borrowing against your 401(k)
If you have a retirement savings plan, you can borrow money against it and pay it off later.
· Selling off unwanted items
You can lower your burden of arranging cash for the down payment by selling things that you no longer use and are just covering up your garage space.
· Get a gift
You can ask your friends and relatives to gift you money. As the gift amount up to $14,000 is excluded annually, your donor will be able to provide you money without any burden of tax.
Remember that the down payment can be a challenge while buying a car. But with the right financial planning and management, you can cross the down payment obstacle and buy your desired car.