Down Payment: How Much Money Is Enough?

How much money is just right for a down payment depends on whether you're buying or leasing a new car. The BuyingAdvice Team advises you to make as small a down payment as you can when you lease, and as large a down payment as you can when you buy. Here are the reasons.

For auto leases, make sure your down payment, called "cap cost reduction", is as little as possible. The reason is simple: you might lose your money. If you get in an accident and the car is totaled, your collision and gap insurance will pay the bill. But nobody will give you back your down payment. However, sometimes making a slightly higher down payment can offer flexibility in mileage allowance or lower your monthly payments. Leasing is a complex process, so be sure to analyze each situation carefully before deciding how much money to put down.

When you're buying a new car you should do the opposite: the more money you put down upfront, the less you have to finance over the term of your loan. You'll reap the rewards in lower monthly payments and perhaps obtain a shorter loan for greater savings.

It's advisable to pay at least 20% of the cost of the car, which will prevent you from being upside down in your automobile financing. If you're discussing the car payment with a dealer, remember to negotiate the purchase price in the first place, separately from any other aspect of the deal. The lower the total cost, the higher percentage less money will represent as a down payment. Also remember that if your down payment is too low the dealer will make up for it somewhere else, either in raising your monthly payments, extending the length of your loan, or taking your trade-in for a value lower than what is estimated in the market.

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