By getting people the loans they need, I can help them reach some financial security. My loans help people by new cars, extend their house and consolidate expensive debts. Once they get their money issues under control they start to do better in all aspects of their life, they have better relationships and start doing better at work. It's great to be the catalyst for positive change in my clients life. If you are also in the financing industry or a client wanting to understand how financing works, please read on. This site is an exploration of how we decide who to lend to and how much we can lend them.
If you are taking out a loan to finance a car, you may want to consider using a down payment. Whether you are taking out a loan from a bank or from a financier who works specifically with people with bad credit, there are a range of benefits of having a down payment. Here's a look at some of the benefits.
1. Lower Monthly Payments
When you make a down payment, you reduce the amount of money you have to finance. As a result, your loan is smaller, and that is reflected in your monthly payments. Although a down payment requires a big chunk of cash upfront, it saves you money every month for the lifetime of your loan.
2. Reduced Interest Payments Over the Course of the Loan
By borrowing less money, you reduce the amount of interest you pay over the lifetime of the loan. For example, imagine you borrowed $10,000 to buy a car. If you have a 6 percent interest rate, you pay $600 in interest on the first year of the loan alone. However, if you have a $2,000 downpayment, for example, you only need to borrow $8,000, and during the first year of the loan, your interest is only $480. That saves you $120 in interest during the first year of the loan, and every following year, you save more on interest.
3. Down Payments May Help You Qualify for a Lower Interest Rate
Although making a down payment is not a guarantee that you will receive a low interest rate, in some cases it can help. A down payment directly reduces the amount of money you have to finance, and as a result, it reduces the lender's risk.
Essentially, if you borrow the entire value of the car and you default on the payment, you lose nothing except the car itself when the lender repossesses it. In contrast, if you put some money down, you make that investment into the vehicle, and if you default on the loan, you lose the vehicle as well as the down payment.
Based on this logic, many lenders assume that if you make a down payment, you are more invested in the vehicle and thus less likely to stop making payments. As a result, the risk is lower, and the lender may extend you a lower interest rate, even if you have bad credit.
For more information about bad credit car finance, contact a professional today.