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Car loans are just like any other loans. You can play with the terms to get a specific result that fits your financial profile. One way to do this with these loans is to play around with your down payment. It is important to mention something before we get started. The total interest charged on a car loan is not as draconian as you find with other loans. The total interest paid on a four year loan of $25,000 at 7 percent, for instance, is $3,500 or so. Why is this? It has to do with the term of the loan. Most car loans are for three to five years with some occasionally going out to the six year term. This is to short a time period to rack up big interest rates unlike a home mortgage where the total is so high you’ll need immediate medical help when you see it! There are two ways to use down payments to manipulate car loans. The first is simply to go with a normal term and lower the monthly payment by putting more down. This can be important if you face potential monthly cash flow issues such as when you have slow business periods. An example might be a real estate agent who always has a slow December. The second alternative is to shorten the term of the loan. The more you can put down equates to the less you have to borrow. If you go with a five year term, this will reduce your monthly payment. The problem is you still have to pay for five years! If you can handle a slightly larger monthly payment, you can used the down payment to reduce the amount you need to borrow and shorten the term to three or four years. As with any loan, the down payment you make on a car loan can make a world of difference in what you end up paying. Figure out what your goal is and then act accordingly. Thomas Ajava writes about first time buyers car loans and other auto loan topics for CarLoanFinanceCompanies.com.
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