Customers looking at new car loans are considering a special type of lending agreement. Part of the complexity in a new car financing deal is in the idea of vehicle depreciation, where new vehicles are guaranteed to decline in value after they leave the lot. Cash rebates and other incentives can encourage consumers to purchase new cars, but most savvy buyers realize the risks and liabilities involved in investing in a brand-new vehicle.
To compensate new car buyers for the decline in value that they will experience, the focus in new vehicle sales is often on enabling consumers to drive the latest models with the latest technology and features. New car buyers often look for driving comfort, style and more in a purchase. However, even though the vehicle will decline in value, many buyers to look for new cars that can “hold their value,” to minimize their financial liability from depreciation. Financing a new car is a huge part of that effort to curb out-of-control costs for those who need to be behind the wheel of a brand new ride.
One of the main strategies that a new car buyer can use to offset the financial liabilities of auto depreciation is a large down payment. A down payment also offers some other specific benefits.
A cash down payment does several things for the borrower. It shows the lender that the buyer is serious about owning and paying off the vehicle. It also shows a lower lending risk, which can lead to lower interest payments, better financing incentives and more for saving money on a new car or truck deal.
The cash down payment also lowers the total amount of money that needs to be financed. This guarantees lower payments of interest over time, and an easier monthly payment schedule.
A down payment combined with a shorter-term auto loan allows the car buyer to outpace depreciation and avoid what’s called ‘negative equity.’ A negative equity situation occurs when the buyer has not been vigilant about borrowing what he or she can pay off over time. Loans without down payments and long-term loans are dangerous, because the amount of equity in the vehicle may not be enough to provide insurance for it in case of an accident or other event that damages the vehicle. Buyers who owe more than what their vehicle is worth are subject to some additional costs for keeping their vehicles on the road.
Today’s lenders are often willing to offer just about anything to secure a situation where they can rake in interest from borrowers. That doesn’t prevent smart car buyers from getting auto financing on their own terms, for situations where they will easily pay back the loan and still have value in their vehicle. The key is not to let a lender persuade you into something that is not in your best interests. Always consider the above details when looking at new car financing, and demand that the lender see things your way. This negotiation process is critical for getting the deals that you deserve on auto lending, not revolving debts that will hang over your head for many years to come.