1. Decreases your interest paid through the life of the loan.

Sometimes when potential customers come on to a local dealership's lot, the only thing they focus on is the actual price of the car. The price of the car is definitely important, there's no doubt about it. However, what ends up really helping or hurting you in the long run is the interest paid on that vehicle. This is a common misunderstanding that we as consumers are rarely taught about, unless your parents were aware of it, but if they weren't even aware of it to tell you about it, how would you learn?  Essentially what interest is, is a fee from the bank you are borrowing money from. 
There are tons of different things that go into what makes the bank determine your interest rate:
  • Car's Age 
  • Car's Price
  • Credit Score
  • Money Down 
  • Bank's relationship with Dealer
The big one that we want to discuss is the "money down" portion of this process.  See, when a bank knows that you have a certain amount of investment into the vehicle, they are more likely to help you reduce your interest rate. Plus, the amount of money you are asking to borrow decreases, which in turns helps them make a more aggressive rate for you. 

Look at it like this...if you had a loan amount for $25,000 and the term was 72 months at 8% interest. By the time you paid the load off after the 72 month period, your "$25,000 car" has now become a "$31,560 car."  But, why? Because of interest on the loan. We want to decrease the amount of interest paid over the life of the loan. So, let's use another example but this time we will be putting some money down against the loan before hand.  Let's say that you were able to put down $5000 against this same vehicle that costs $25,000. Your loan amount is now only $20,000. In this case, depending on the bank of course, you are able to negotiate a better interest rate other than the 8%, for this example lets say they give you a break down to only 6.5% interest. The total amount you pay at the end of the loan is only $24,200 + $5000 (down payment at the beginning of the loan). Your total investment is now only $29,200 for the SAME car. That is a savings of over $2300 bucks! What would you do with an extra $2300 in your pocket at the end of the loan? Probably use it as a down payment on the next vehicle and save yourself money there too!

2. Increases equity held in the vehicle

That is a confusing statement for first time buyers. You see, when you purchase a vehicle at MSPR, you run the risk of the car's value to diminish over time. This isn't always a problem, except when you go to trade the vehicle in later on, you will not see the same value of that vehicle a few years after it's purchased, that's just the way of the car world.  

So, what can we do to prevent this from happening?  HINT: Rhymes with "Honey Frown" 
.....the answer is Money Down.  

When you initially put money down on a vehicle, lets use the example from above, you bring the total loan amount of the car down $20,000 from the intitial $25,000. When depreciation on the vehicle happens, that $5000 you put down keeps you from being "flipped" in your car loan. 
"What does being "flipped" in my car loan mean"
Simple answer is: You owe more on the car, than what it's worth. 

Money down on that vehicle upfront helps keep you above the slip and slide of depreciation. When you go to trade you vehicle in later, you will be thanking us. There is nothing worse than owing more on a vehicle than it's worth, because that money HAS to go somewhere. Usually, it goes into the next car loan, which adds more money to the overall borrowed amount of the new car. Which then means, when you go to trade THAT car in after a couple years, you are going to be in the same "flipped" boat. So, do yourself a favor and put some money down right away on your vehicle and help your future self out.

3. Helps your Payments

The next more important thing to customer's is their monthly payment. 
  • "How much is my car going to cost per month?"
This is a very pressing issue for most people, especially those who are living on a month to month paycheck situation. How do you manipulate the amount you pay per month? You guessed it... Money Down. 
This works because the more money down you put towards the vehicle, the less you have to borrow from the bank. In the above example, we discussed how the lower amount you finance the better interest rate you will get. Let's again use the same numbers form before.
  • $25,000 @ 8% for 72month = $428/month
  • $20,000 @ 6.5% for 72months = $336/ month
That's almost $100 a months extra in your pocket EVERY MONTH! Ask yourself this...what would you do with an extra $100 in your pocket every month?

4. Better Chance of getting approved by the bank

When you have a rough credit history and the bank is deciding whether to loan to you or not, they are going to need a few things in order to make the deal happen. 
Typically they require some (if not all) of the following
  • A vehicle less than than 4 years old
  • Under 70,000 miles (depending on the banks)
  • Money Down 
  • Co-Signer (maybe)
When you have a substantial amount of money down on the car loan, the bank looks at this as if you are dedicated to making payments on this vehicle.  If you put $5000 down, you have a lower risk of ditching the vehicle on the side of the road and leaving the bank high and dry. This is a good sign when a potential customer puts forth the effort to add some collateral to the deal.
5. Lower interest rates

We discussed this a little bit earlier on in the first section, but to touch on it again because of its importance, lowering your interest rate as much as you can will help you massively in the future with the vehicle. So, make sure that when you are looking to finance a Used Car from local dealership to try and get the most aggressive interest rate that you qualify for. 
  • "What do you mean "Qualify For" don't we all get great interest rates"
The simple answer: No. Not at all. 

The banks that are lending the money out make the decision on what interest rate each individual customer will receive. So, you will get what your credit history, car loan history ECT will qualify you for.