Down Payment: Car Buying and Car Leasing

The first question that a car dealer would ask is, "How much are you going to pay for the down payment?". This question is crucial since this will have sweeping effects on your budget. The down payment you make affects more than the monthly payments you'll make and can cost you several thousand of dollars if you don't make the right decision. In this post we will be discussing the ideal down payments to be made both for car buying and car leasing so that you in turn can maximize your money.

Down Payment for Car Buying

A wise down payment when buying a car is at least 20%. Putting down 20% at the time of purchase has effectively paid the car's depreciation for the year upfront and is ideally considered a wise move. This means that the car buyer is not paying more on the loan that what the car is actually worth.

Smart money managers, who make a 20-percent down payment, have more freedom to make a change in the car they drive. During the second year, when the car depreciates at a much slower rate, they would begin to build equity in their car. During a trade-in, they would actually get a positive credit toward the new car.

Down Payment for Car Leasing

The strategy for car leasing is a direct opposite of buying since there is no down payment required. In car leasing, the down-payment is called"cap cost reduction", the higher amount you paid on your "cap cost reduction" the lower becomes the monthly payment. Although this seems to be a good option, it is not entirely recommendable and practical. Just imagine, if a buyer gets into a serious accident and the car is totaled in the first few months of the lease, the down payment then is completely lost.

So, in leasing a car, opt to make higher monthly payments than putting the money down on the car. You can go one step further and roll the "drive-off costs," which would normally be paid upfront, into your monthly lease payment. Drive-off fees are the related fees required to drive your car off the lot: security deposit, acquisition fee, etc.

Remember that when you are organizing the financing nuts and bolts of your next car, look not only at the financial cost as well as your long-range financial picture. It is ideal that you maximize the power of your money and retain as many options as possible.