Down payment

[circatee]

Short version: I am now waiting to hear back from my dealer agent, on a new Mustang GT (other posts about this, in the S550 section).
Based on current financial terms, there is a possibility that I would need to make a down payment, of around $5K.

With cars being depreciating commodities, is it worth it to put any down payment (I would also purchase GAP)? Looking for your ideas and thoughts on this.

PS: Not sure if this is exactly the correct section to post this thread. Thus, feel free to move accordingly. Thanks

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[sk47]

Hello; This is an interesting question. Some decades ago the answer was to put down as much up front as you could afford. It fact it use to be that a substantial down payment was required. I have not financed anything since around 1986 so my outlook may not be worth much.

Anyway the good part of money down was that you lowered the finance cost and payments for the life of the loan. Monthly payments could be substantially lower. You also do not wind up in the "trap" of being upside down on what you owe. By upside down I mean you wind up owing more on the loan than the vehicle is worth. I have known people who financed the total vehicle cost and the state taxes and insurance. These people wind up with high payments and are always upside down. Had a relative do this and after a few months could not keep up with the payments. Wanted me to take over the payments. After some checking I determined the car was worth much less than what was owed.
The other part of being upside down is when you go to trade some months or years from now you will still be underwater( upside down) on the loan. Dealers will work with you. They will tell you they will pay off the old loan if you trade and finance thru them. This puts you deeper in a hole than before because I think you will not qualify for the best interest rates, so will have to pay higher interest rates.

If you can afford to put a down payment then do so. Do not finance the taxes. Do not finance the insurance. My guess is it will be better to pay the tax and insurance yourself outside the dealer. Then keep the vehicle long enough to pay off everything you owe before going in to trade.
The best vehicle deals I have gotten have been when I saved enough to pay off the total costs up front. This is not liked by dealers any more. They get some extra profit if they can get you to finance. I have had dealers give me a better price if I finance than for cash.

The second best deal was when I had saved enough to buy a Ford van. I used my savings as collateral for the loan. Got a very much better interest rate. I could not use the savings until I paid off the loan but at the end I had the Van and all my savings.
Here is the kicker and where I do not have experience. It is possible to get a zero percent interest loan now. This sounds good and may well be good. I do not know the tricks to look for. My guess is a person may not qualify for zero percent for one thing. The other may be the length of the loan may be restricted to 48 months or some such. So the payments might be too high even if you qualify.

I await post from others who have been thru this more recently.

Good luck

 

[Whitest Russian]

I've been through 5 cars in the last 5 years (2 new, 3 used, all financed) and none of them required putting money down so that's a little weird for me. Is this a credit thing?

My thoughts are that how much money you put into the car depends on 2 things. Your interest rate and how long you're going to keep the car. If you have 0% financing from Ford you should only make the minimum payments. It's much better to have that money on hand for emergencies, buying GME, or literally anything else. If the interest rate is higher than you need to decide what's more important to you. One of my cars had a 0.9% rate from the manufacturer and for me that was low enough to keep making minimum payments.

If you plan on keeping the car for a while and paying interest, I do think it's a better idea to put money down/pay more than the minimum payment to lessen the amount of money lost to the bank.

Also gap idea is a good idea if you fall within it's coverage. If you decided to get it DO NOT get it from the dealer but go through your insurance. You can also cancel it once you have paid enough to close that gap.

 

[ZX3ST]

It really comes down to interest rate on the deal, your general attitude toward the idea of paying interest, and what your bank account balance looks like.

I suspect if your dealer is saying you must put 5k down, it's because the bank won't finance over X amount based on your income and credit score. And that your 5k down payment gets you down to a loan amount they will agree to.

IMO and IME, it's best to put as much $$$ down as you can reasonably afford. At the very least to put yourself in a position where you don't need gap insurance. If you had enough cash in the bank to buy the car outright, would you consider financing in the first place?

I read some of your other posts and it sounds like you may be upside-down in your current situation. If it were me, the current car would either have to be a complete piece of crap, or some other extenuating circumstance to convince me to throw additional money into the toilet. On the surface my general opinion is if the dealer has to pull strings to get you financed, you're not getting a good deal.

EDIT to add:
With cars being depreciating assets, it's in your best interest to reduce the amount of interest you pay. That can be done with a combination of large down payment and/or paying the loan off early.

Unless you're paying 0% on the loan, you're paying the bank money that could be in your pocket. It's up to you to decide how much you're willing to let them have.

 

[circatee]

It really comes down to interest rate on the deal, your general attitude toward the idea of paying interest, and what your bank account balance looks like.

I suspect if your dealer is saying you must put 5k down, it's because the bank won't finance over X amount based on your income and credit score. And that your 5k down payment gets you down to a loan amount they will agree to.

IMO and IME, it's best to put as much $$$ down as you can reasonably afford. At the very least to put yourself in a position where you don't need gap insurance. If you had enough cash in the bank to buy the car outright, would you consider financing in the first place?

I read some of your other posts and it sounds like you may be upside-down in your current situation. If it were me, the current car would either have to be a complete piece of crap, or some other extenuating circumstance to convince me to throw additional money into the toilet. On the surface my general opinion is if the dealer has to pull strings to get you financed, you're not getting a good deal.

EDIT to add:
With cars being depreciating assets, it's in your best interest to reduce the amount of interest you pay. That can be done with a combination of large down payment and/or paying the loan off early.

Unless you're paying 0% on the loan, you're paying the bank money that could be in your pocket. It's up to you to decide how much you're willing to let them have.

Brilliant post, and I love the feedback! Yes, I am currently 'upside down', on the financing front, and I know this is not practical and should be avoided.

Ideally, paying a large down payment would get me back in the black. Just not in a position to do so currently. I keep thinking to myself, life is short, too...

 

[sk47]

Brilliant post, and I love the feedback! Yes, I am currently 'upside down', on the financing front, and I know this is not practical and should be avoided.

Ideally, paying a large down payment would get me back in the black. Just not in a position to do so currently. I keep thinking to myself, life is short, too...

Hello; Yes I have heard the "life is short" sort of idea before. You are not wrong in a real sense. I am old so have had the chance to see how lifestyle choices can play out. Some of the people I have known did chose a different path than I did. I was a saver and conservative in my finances. I did not like having to pay a bank or finance company interest. I had to do so for a number of years because there was no other way when I first started out. I guess most of us are in that position when we are young.
One difference was I bought base model vehicles much of the time and paid them off before trading them in or selling. The Ford van I mentioned earlier was to be a work van so I felt it was worth it to finance. Sort of worked out in that I was able to do side jobs with it for a few years. I later converted it to more personal use.
The first Ford pickup I was able to pay cash for was an 1989 F-150. I ran the numbers and figured to have saved nearly $3,000 by not having to finance. Of course I had to do without some extras for several years in order to save enough to pay cash. That is the unpleasant side of saving for something. You have to avoid buying some things in order to save. Once I managed that first truck I did not go back to paying some bank interest for later purchases.

The flip side of life styles is some of my friends had nicer vehicles and more stuff when we were young. They may have had a nicer life in some ways. One friend had a new 1968 Mustang fastback with a 390 V8 and I had a used Pontiac which was eleven years old. Same story for some other friends. Another had a 1968 Pontiac Firebird with a 350 HO. Those two are now in some worse financial positions than I am. One is doing OK since he has inherited from family, but for a while he was mowing grass in his late 60's. The other is in constant debt and will never be out of debt. He owes for his home and anything else he has. Miss a few payments and they come to get his stuff.
I now own my home outright and owe nothing on anything. Did I lose out by doing without and not going into debt? No I do not think so because I lived to an old age. Had may friends and I died young then they would have made the better choice. But we lived.

You are already in the upside down hole. If you make a trade on the dealers terms that hole will be much deeper. At some point it can be almost impossible to get out of that sort of hole. It is for each of us to decide if the thrill of having something now is worth the long term cost. Maybe you will be lucky in having some relative leave you a lot in their will. I never had that sort of thing to look forward to, so had to make choices based on what I could earn.

Good luck with whatever you decide to do.

 

[NGOT8R]

Any chance you know someone who works for Ford? If so, ask about getting a PIN for friends and family pricing and don’t get the GAP insurance. That will be a savings of a few thousand right there.

 

[Rapid Red]

@sk47
A little long but well said and the why it works. But you're most likely talking to a dreamer.

Nothing outside of now and I want, is possible to think about. In the end, some never own anything .

Owning is freedom in debt, right side up or upside down is slavery.

 

[Nawsad123]

Depreciation and inflation would be things to think about. The minute you drive that car off the lot, you will lose 10-20%. Mu suggestion is to put up as much as you can upfront for a couple reasons.
- it will lower your monthly payment by putting money down
- think of putting money down a sort of 'investment'. As you go to sell your vehicle you will have equity in your car that will come back to your pocket
-cars depreciate faster than you can pay off. You dont want to own a vehicle that is worth less than what you owe.

 

[Shadow277]

Bottom line: 0% APR? Who cares. Gives you more options with money at no cost to you.

Make sure the principle of the car is around 25% of your take home pay. Principle, not monthly payments. I recommend Dave Ramsey. At least the baby steps 1-4. Talking about investments isn't worth anything unless you actually invest.

 

[circatee]

Hello; Yes I have heard the "life is short" sort of idea before. You are not wrong in a real sense. I am old so have had the chance to see how lifestyle choices can play out. Some of the people I have known did chose a different path than I did. I was a saver and conservative in my finances. I did not like having to pay a bank or finance company interest. I had to do so for a number of years because there was no other way when I first started out. I guess most of us are in that position when we are young.
One difference was I bought base model vehicles much of the time and paid them off before trading them in or selling. The Ford van I mentioned earlier was to be a work van so I felt it was worth it to finance. Sort of worked out in that I was able to do side jobs with it for a few years. I later converted it to more personal use.
The first Ford pickup I was able to pay cash for was an 1989 F-150. I ran the numbers and figured to have saved nearly $3,000 by not having to finance. Of course I had to do without some extras for several years in order to save enough to pay cash. That is the unpleasant side of saving for something. You have to avoid buying some things in order to save. Once I managed that first truck I did not go back to paying some bank interest for later purchases.

The flip side of life styles is some of my friends had nicer vehicles and more stuff when we were young. They may have had a nicer life in some ways. One friend had a new 1968 Mustang fastback with a 390 V8 and I had a used Pontiac which was eleven years old. Same story for some other friends. Another had a 1968 Pontiac Firebird with a 350 HO. Those two are now in some worse financial positions than I am. One is doing OK since he has inherited from family, but for a while he was mowing grass in his late 60's. The other is in constant debt and will never be out of debt. He owes for his home and anything else he has. Miss a few payments and they come to get his stuff.
I now own my home outright and owe nothing on anything. Did I lose out by doing without and not going into debt? No I do not think so because I lived to an old age. Had may friends and I died young then they would have made the better choice. But we lived.

You are already in the upside down hole. If you make a trade on the dealers terms that hole will be much deeper. At some point it can be almost impossible to get out of that sort of hole. It is for each of us to decide if the thrill of having something now is worth the long term cost. Maybe you will be lucky in having some relative leave you a lot in their will. I never had that sort of thing to look forward to, so had to make choices based on what I could earn.

Good luck with whatever you decide to do.

My my, another brilliant response. Thanks for taking the time to share. All very, very valid points. Even more so on the 'short term joy', versus the long term financial stability. Again, thanks.

 

[circatee]

@sk47
A little long but well said and the why it works. But you're most likely talking to a dreamer.

Nothing outside of now and I want, is possible to think about. In the end, some never own anything .

Owning is freedom in debt, right side up or upside down is slavery.

A tad bit harsh. Alas, I certainly understand your point.

 

[ZX3ST]

Brilliant post, and I love the feedback! Yes, I am currently 'upside down', on the financing front, and I know this is not practical and should be avoided.

Ideally, paying a large down payment would get me back in the black. Just not in a position to do so currently. I keep thinking to myself, life is short, too...

I'm with you on the "life is short" frame of mind, but a line has to be drawn somewhere. Those comments generally come from the mid life crisis crowd, and I'd bet more than half of them have 6-12 month's salary in the bank in case things go sideways at work.

My idea of "life is short" is cutting into my cushion a little bit to buy something I've had my eye on. (I did this when I bought my 350). The caveat is to have some self control, because otherwise one can use this play over-and-over until they're broke.

Financial situations tend to change as we get older (hopefully for the better), and everyone is different. If I was looking at a new car purchase and couldn't swing at least 20% up front, then I can't afford it. Not to mention you have to think of the tax/title fees that you'll also need to cough up.

Don't take this as judgement, but you sound young, and that you like the car you're driving just fine. I'd wait until I was in a more comfortable position before spending on a "want". ESPECIALLY given the current job market.

 

[circatee]

FYI - all the comments here, have certainly given me things to ponder. Thus, thanks to everyone that has contributed to this thread.

 

[shogun32]

Ideally, paying a large down payment would get me back in the black. Just not in a position to do so currently. I keep thinking to myself, life is short, too

then buy a used car. Or a vastly cheaper car. Do you have money set aside already for a minimum of 3 months worth of payments?

If you're buying new you want to cram as much of the 1st year 20-25% depreciation down the dealer's (or Ford's) throat so you don't have to eat (so much) it. So don't accept a deal that is worse than 15% off MSRP before tax. For things like F150 you can generally get into the 20-25% bracket.

Then if you put 10% down you have a LTV of around 90-95% and you're on the right side of depreciation or close enough that GAP is completely unnecessary.

If you're "stretching" to buy a car, don't. Go pare all your expenses (Instant Ramen with fresh green vegetables, 6 days a week) till you have a tidy pile of cash. The deals will typically get better the deeper into the year it gets. Then don't blow it all on a down payment unless in so doing you dramatically reduce your monthly (eg. pay off 1/2 at one fell swoop) and you still have 3-6mo worth of payments just sitting around in a sock reserved for that express purpose.

Otherwise lease but that one has all kinds of nasty pitfalls that may not be immediately obvious.

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