Is there any reason not to put a 35% down payment on a car?
"If you are going to finance a used car, it is frequently best to arrange financing before you even pick out the car.    The easiest way I recommend is to talk to a local credit union or two.   They'll be able to tell you your interest rate and terms without having to talk to the dealer at all.  Most likely, they'll be significantly better than the dealer at getting a good interest rate. As far ""what is a good rate?"", check out bankrate for average loan rates: http://www.bankrate.com/auto.aspx Today's numbers look like 2.87% is the average for a 48-month used car loan.   That means if the bank comes back with something ridiculous like 9% or 10% you know they are way overcharging you.   I know someone who got a first-time-buyer rate from Ford and ended up with a 19.99% rate.   I could literally buy the car on my credit card and end up in a better spot. Honestly though, if you are 18 and have $5500 to put towards a car, I'd buy a $4500 car and save $1000 for repairs and maintenance.   After you have the car, put $250 every month for a ""car payment"" into a savings account for your next car." "It sounds like you're basing your understanding of your options regarding financing (and even if you need a car) on what the car salesman told you.  It's important to remember that a car salesman will do anything and say anything to get you to buy a car. Saying something as simple as, ""You have a low credit score, but we can still help you."" can encourage someone who does not realize that the car salesman is not a financial advisor to make the purchase. In conclusion," If you know that you have a reasonable credit history, and you know that your FICO score is in the 690-neighborhood, and the dealer tells you that you have no credit history, then you also know one of two things: Either way, you should walk away from the deal.  If the dealer is willing to lie to you about your credit score, the dealer is also willing to give you a bad deal in other respects. Consider buying a cheaper used car that has been checked out by a mechanic of your choice.  If possible, pay cash; if not, borrow as small an amount as possible from a credit union, bank, or even a very low-interest rate credit card.  (Credit cards force you to pay off the loan quickly, and do not tie up your car title.  I still have not managed to get my credit union loan off of my car title, ten years after I paid it off.) "I somewhat agree to Alex B's post.  I was a finance manager for 7 years both prime and sub-prime(special)(in other words bad).   The parts he's 100% right on.  Hit up you local credit union then your bank.  Get your financing done first if you can.  Now 690 credit score is one of 3 bureaus, not all banks and lending institutions use all three or the same one.  Also the score isn't everything.  That could be good or bad.  The 2-3% range is normally for the 720+ crowd unless its a manufacture.  (GM, Ford, so on)  With rates capping out at around 30% depending on state laws.  However 690 should not be 19% on a new or late model car.  At 690 at 19% you would have be going for a 70,000+ mile 6 year or older car if I had to guess. Assuming you have no BK's and repos.   Some times dealerships have to pay banks to get people financed.  Its hidden in the cost and they by law are not allowed to tell you about it because it cannot be passed on to you.  However the banks don't just fund any crazy amount of money either say like 115% of book and  that it.  That is where and why they want that big down payment because that is used to off set the finance amount and what you pay.  Making the dealership money.  and i can go on and on and on...   But you should always try to get the funding prior.  Your credit union won't charge the hidden fees and they only care about your down payment to see that you are making a commitment.  If you are buying used.  Save out 1500 for future repairs and tires and such.  Don't buy paint protectant and such.  If you finance thru the dealership and put less than 20% down DO buy Gap Insurance but thats it.  I can go on and on but I won't.  Feel free to ask though.   And to answer your original only question with not context. ""Is there any reason not to put a 35% down payment on a car?"" Yes if the money is better served paying off credit cards or long term mortgage, assuming you don't need the write off." I am going to give advice that is slightly differently based on my own experiences. First, regarding the financing, I have found that the dealers do in fact have access to the best interest rates, but only after negotiating with a better financing offer from a bank. When I bought my current car, the dealer was offering somewhere around 3.3%, which I knew was way above the current industry standard and I knew I had good credit.  So, like I did with my previous car and my wife's car, I went to local and national banks, came back with deals around 2.5 or 2.6%.  When I told the dealer, they were able to offer 2.19%. So it's ok to go with the dealer's financing, just never take them at face value.  Whatever they offer you and no matter how much they insist it's the best deal, never believe it!  They can do better! With my first car, I had little credit history, similar to your situation, and interest rates were much higher then, like 6 - 8%.  The dealer offered me 10%.  I almost walked out the door laughing.  I went to my own bank and they offered me 8%, which was still high, but better than 10%.  Suddenly, the dealer could do 7.5% with a 0.25% discount if I auto-pay through my checking account. Down-payment wise, there is nothing wrong with a 35% down payment.  When I purchased my current car, I put 50% down.  All else being equal, the more cash down, the better off you'll be.  The only issue is to weigh that down payment and interest rate against the cost of other debts you may have.  If you have a 7% student loan and the car loan is only 3%, you're better off paying the minimum on the car and using your cash to pay down your student loan.  Unless your student loan balance is significantly more than the 8k you need to finance (like a 20k or 30k loan). Also remember that a car is a depreciating asset.  I pay off cars as fast as I can.  They are terrible debt to have.  A home can rise in value, offsetting a mortgage.  Your education keeps you employed and employable and will certainly not make you dumber, so that is a win.  But a car?  You pay $15k for a car that will be worth $14k the next day and $10k a year from now.  It's easy to get underwater with a car loan if the down payment is small, interest rate high, and the car loses value quickly. To make sure I answer your questions: Do you guys think it's a good idea to put that much down on the car? If you can afford it and it will not interfere with repayment of much higher interest debts, then yes.  A car loan is a major liability, so if you can minimize the debt, you'll be better off. What interest rate is reasonable based on my credit score? I am not a banker, loan officer, or dealer, so I cannot answer this with much credibility.  But given today's market, 2.5 - 4% seems reasonable. Do you think I'll get approved? Probably, but only one way to find out! "Do you guys think it's a good idea to put that much down on the car ? In my opinion, it depends on a lot of factors.  If you have nothing to pay, and are not planning to invest in something that cost a lot soon (I.E an house, etc). Then I see no problem in put ""that much down on the car"". Remember that the more you pay at first, the less you will pay interest on. However, if you are planning on buying something big soon, then you might want to pay less and keep moneys for your future investment. I would honestly not finance a car with the garage as I find their interest rate to high. Possibilities depends a lot of your bank accounts, but what I would personally do is pay it cash using my credit margin with the bank which is only 2.8% interest rate. Garage where I live rarely finance under 7% interest rate. You may not have a credit margin, but maybe you could get a loan with the bank instead ? Many bank keep an history of your loan which will get you a better credit name when trying to buy an home later. On the other side, having a good credit name is not really useful in a garage. What interest rate is reasonable based on my credit score? I don't think it is possible to give a real answer to this as it change a lot around the world. However, I would recommend to simply compare with the interest rate asked when being loan by the bank." I suggest you to apply for a car loan in other banks like DCU or wells fargo, you might get the loan with not the best rate, but after a year you can refinance your loan with a better rate in a different bank since you are going to have a better credit as long as you make your payments in time. I bought a Jetta 2014 last year, my loan is from Wells Fargo. Like you, my credit was low before the loan because I didn't have too much credit history. They gave me the loan with a 8.9% of interest. I suggest you buy a more reasonably priced car and keep saving to have the full amount for the car you really want in the future. If you can avoid getting loans it helps a lot in you financial situation. Makes sense so long as you can afford it while still maintaining at least six months living reserves. The sooner you own outright a decreasing asset the better which should be considered when selecting your loan term. However, with today's low rates and high performing stock market you may want to consider allowing that money to be put to better use. It all depends how risk adverse you are. That emotional aide of this decision and emotions have value, but only you can determine what that value is. So - generally speaking, the sooner you own an asset of decreasing value the better off you are, but in exceptionally low interest rate environments such as today there are, as mentioned, other things you may want to consider. Good luck and enjoy your new ride. Nothing better then some brand new wheels aye.
"This is a tricky question, because the financial aid system can create odd incentives. Good schools tend to price themselves above and beyond any reasonable middle-class ability to save and then offer financial aid, much of it in the form of internal ""grants"" or ""loans"".  If you think about it, the internal grant is more of a discount than a grant since no money need have ever existed to ""fund"" the grant.  The actual price to the parents is based on financial aid paperwork and related rules, perhaps forming a college price-setting cartel.  It is these rules that need to be considered when creating a savings plan. Suppose it is $50k/year to send your kids to the best school admitting them.  Thats $200k for the 4 years.  Suppose you had $50k now to save instead of $10K, and are wondering whether to put it in your son's college savings (whether or not you can do so in a tax advantaged way) or to pay down the mortgage.  If you put it in your kids savings, and the $50k becomes $75k over time, that $75k will be used up in a year and a half as the financial aid system will suck it dry first before offering you much help.  On the other hand, if you put the $50k on paying down the mortgage [provided the mortgage is ""healthy"" not upside down], your house payment will still be the same when your kids go to college.  The financial aid calculations will consider that the kid has no savings, and allocate a ""grant"" and some loans the first year and a parental portion that you might be able to tap with a home equity loan or work overtime.     Generally, you should also be encouraging your kids to excel and perhaps obtain academic scholarships or at least obtain some great opportunities.  A large college savings fund might be as counterproductive as a zero fund.  They shouldn't be expecting to breeze through some party school with a nice pad and car, homework assistance, and beer money.  Unless they are good at a sport, like maybe football -- in which case you won't need to be the provider. It is not obvious how much the optimal ESA amount is.  It might not be $0.  Saving like crazy in there probably isn't the best thing to do, either." If it's possible in your case to get such a loan, then sure, providing the loan fees aren't in excess of the interest rate difference.  Auto loans don't have the fees mortgages do, but check the specific loan you're looking at - it may have some fees, and they'd need to be lower than the interest rate savings. Car loans can be tricky to refinance, because of the value of a used car being less than that of a new car.  How much better your credit is likely determines how hard this would be to get.  Also, how much down payment you put down.  Cars devalue 20% or so instantly (a used car with 5 miles on it tends to be worth around 80% of a new car's cost), so if you put less than 20% down, you may be underwater - meaning the principal left on the loan exceeds the value of the car (and so you wouldn't be getting a fully secured loan at that point). However, if your loan amount isn't too high relative to the value of the car, it should be possible.  Check out various lenders in advance; also check out non-lender sites for advice.  Edmunds.com has some of this laid out, for example (though they're an industry-based site so they're not truly unbiased). I'd also recommend using this to help you pay off the loan faster.  If you do refinance to a lower rate, consider taking the savings and sending it to the lender - i.e., keeping your payment the same, just lowering the interest charge.  That way you pay it off faster. "It depends on what your plans for the future are.. Taking out a loan is not a bad thing if it is at a good rate and under good terms and you are sure you can handle the payments. If you buy the car with cash you may be giving up the opportunity to later get a great rate on that $8k. However, you are probably not utilizing that $20k to make as much interest as you'd then be paying if you did take the $8k on loan. Since you say ""house fund"" I assume you are saving to make a down payment on a new house. If you plan to buy that house within the next 6 months the hard pulls on your credit report from applying for the car loan will probably ding your credit score for the next 6 months which might cost you on your mortgage rate. However, if you don't plan to buy for a few more years and if you've never had a car payment before then the auto loan would actually be adding diversity to your credit history and in the long run would help your score. Another factor to consider is the loan-to-value ratio you are shooting for. LTV affects the interest rate, requirements for private mortgage insurance, etc.. Mortgage rates are at an all-time low and lower than auto-rates, so depending on the terms of the house purchase that $8k might be better spent on the car than the house. In short, if you want to buy the house soon (rates are loooow, market is a buyer's market), and you need that $8k to get a better mortgage rate or prevent you from being required to buy PMI you should probably put it toward the house. Otherwise you should probably put it toward the car. Last piece of advice. If you absolutely must buy a house and a car in the same short time-frame, do them both on the same day so that your credit score is not dinged before applying for one or the other. With mortgages this may be difficult considering the longer closing procedures, but try to time it so that your credit is getting checked by the mortgage broker and the auto lender on the same day." "Looking at your numbers, I would definitively consider selling the car, and use the public transportation instead. You could easily save $450 month, plus gas and maintenance. As you mentioned, public transportation will be only a fraction of this amount, so you might end up saving around $400 monthly. If you decide to keep the car, the amount that you will spent monthly is easily a payment for a brand-new car. What if, God forbid, for any kind of reason, you get a traffic ticket that can increase your insurance premium? What if the engine stops working, and you will need to spent thousands of dollars fixing the car? With this, and all of the other expenses pilled up, you might be unable to afford all this at some point. If you decide to sell the car, the money that you will save monthly can be put in a savings account (or in any other sort of ""safe"" investment instrument). In this way, if your situation changes where you need a car again, you will be able to easily afford a new car. Regarding your need to visit your friends on the suburbs every other weekend, I think you can just talk with them, and meet on places where public transportation is available, or ask them to pick you up in the nearest station to the suburbs.  In conclusion, based on what you said, I do not think the ""little"" convenience that you get in owning the car outweighs the big savings that you get monthly, if you decide to sell the car." "—they will pull your credit report and perform a ""hard inquiry"" on your file. This means the inquiry will be noted in your credit report and count against you, slightly. This is perfectly normal. Just don't apply too many times too soon or it can begin to add up. They will want proof of your income by asking for recent pay stubs. With this information, your income and your credit profile, they will determine the maximum amount of credit they will lend you and at what interest rate. The better your credit profile, the more money they can lend and the lower the rate.  —that you want financed (the price of the car minus your down payment) that is the amount you can apply for and in that case the only factors they will determine are 1) whether or not you will be approved and 2) at what interest rate you will be approved. While interest rates generally follow the direction of the prime rate as dictated by the federal reserve, there are market fluctuations and variances from one lending institution to the next. Further, different institutions will have different criteria in terms of the amount of credit they deem you worthy of.  —you know the price of the car. Now determine how much you want to put down and take the difference to a bank or credit union. Or, work directly with the dealer. Dealers often give special deals if you finance through them. A common scenario is: 1) A person goes to the car dealer 2) test drives 3) negotiates the purchase price 4) the salesman works the numbers to determine your monthly payment through their own bank. Pay attention during that last process. This is also where they can gain leverage in the deal and make money through the interest rate by offering longer loan terms to maximize their returns on your loan. It's not necessarily a bad thing, it's just how they have to make their money in the deal. It's good to know so you can form your own analysis of the deal and make sure they don't completely bankrupt you.  —is that you can comfortable afford your monthly payment. The car dealers don't really know how much you can afford. They will try to determine to the best they can but only you really know. Don't take more than you can afford. be conservative about it. For example: Think you can only afford $300 a month? Budget it even lower and make yourself only afford $225 a month." What does not seem reasonable about your plan is the payment and buyout.  While $200/month payments are possible (but hard to find), buyouts are more typically in the five figure range. Given that your savings and desired payment for a car is low (the average car payment today is about 450/month), can you really afford the massive depreciation of a late model vehicle? Why not purchase a 2000 car now, and save the 200-300 per month?  In about a year you could move up to a ~5000 car.  You can buy a pretty nice car for 5K.   Myself, I am on my third year of driving a 4000 car. "I guess I don't understand how you figure that taking out a car loan for $20k will result in adding $20k in equity.  A car loan is a liability, not an asset like your $100k in cash.  Besides, you don't get a dollar-for-dollar consideration when figuring a car's value against the loan it is encumbered by.  In other words, the car is only worth what someone's willing to pay for it, not what your loan amount on it is. Remember that taking on a loan will increase your debt-to-income ratio, which is always a factor when trying to obtain a mortgage.  At the same time, taking on new debt just prior to shopping for a mortgage could make it more difficult to find a lender.  Every time a credit report (hard inquiry) is run on you, it temporarily impacts your credit score.  The only exception to this rule is when it comes to mortgages.  In the U.S., the way it works is that once you start shopping for a mortgage with lenders, for the next 30 days, additional inquiries into your credit report for purposes of mortgage funding do not count against your credit score, so it's a ""freebie"" in a way.  You can't use this to shop for any other kind of credit, but the purpose is to allow you a chance to shop for the best mortgage rate you can get without adversely impacting your credit. In the end, my advice is to stop looking at how much house you can buy, and instead focus on a house with payments you can live with and afford.  Trying to buy the most house based on what someone's willing to lend you leaves no room in the near-term for being able to borrow if the property has some repair needs, you want to furnish/upgrade it, or for any other unanticipated need which may arise that requires credit.  Don't paint yourself into a corner.  Just because you can borrow big doesn't mean you should borrow big. I hope this helps. Good luck!" I tend to agree with Rocky's answer.  However it sounds like you want to look at this from the numbers side of things.  So let's consider some numbers: I'm assuming you have the money to buy the new car available as cash in hand, and that if you don't buy the car, you'll invest it reasonably.  So if you buy the new car today, you're $17K out of pocket.  Let's look at some scenarios and compare.  Assuming: If you buy the new car today, then after 1 year you'll have: If you keep the old car, after 1 year you get: After 2 years, you have: And after 3 years, you're at: Or in other words, nothing depletes the value of your assets faster than buying the new car. After 1 year, you've essentially lost $5K to depreciation.    However, over the short term the immediate cost of the tires combined with the continued depreciation of the old car do reduce your purchasing power somewhat (you won't be able to muster $25K towards a new car without chipping in a bit of extra cash), and inflation will tend to drive the cost of the new car up as time goes on.  So the relative gap between the value of your assets and the cost of the new car tends to increase, though it stays well below the $5k that you lose to depreciation if you buy the new car immediately.  Which is something that you could potentially spin to support whichever side you prefer, I suppose. Though note that I've made some fairly pessimistic assumptions.  In particular, the current U.S. inflation rate is under 1%, and a new car may depreciate by as much as 25% in the first year while older cars may depreciate by less than the 8% assumed.  And I selected the cheapest new car price cited, and didn't credit the tires with adding any value to your old car.  Each of those aspects tends to make continuing to drive the older car a better option than buying the new one.