‘There are some benefits…’
Few things are as stressful as buying a new vehicle. Whether it is fresh off the assembly line or used, chances are you’ll want to strategize in order to get the smartest deal.
Since cars depreciate the moment they’re driven off the lot, the best way to handle a purchase might be to find the vehicle you like, then make the financing work for you. That’s the advice one car salesman is giving potential clients. TikTok creator Joseph (@notdarealyoka) is giving car buyers a lesson about down payments.
In a video that’s been watched almost 1,000 times, Joseph enters his manager’s office to talk about a customer who has the money but doesn’t want to put it all on a vehicle purchase. His manager, Brian, offers considerations for paying a chunk of money up front.
“There are some benefits to putting money down,” said Brian, who then noted that putting money down will get the buyer into a faster trade cycle.
He said a down payment will also “lower the risk to the banks and put you in equity faster.” A lower risk to banks is good because those institutions are then more likely to give out a loan with a lower interest rate, he explained.
Brian also noted that getting equity faster is helpful, as people typically don’t want to keep a vehicle longer than three or four years.
At the end of the video, Joseph summarizes that going with zero dollars down isn’t always the best option, especially when considering future vehicle purchases and payments.
“Especially if you’re one of those that like to trade out of the vehicles every year or every other year,” he said. In that instance, he suggests either looking into a lease or putting some money down because “you don’t want to [fiscally] bury yourself in a vehicle,” he said.
One commenter, Ben (@Ferriss24), takes issue with the idea that more money down would result in a lower interest rate. “I’ve never seen a lower interest rate being lowered by giving up cash up front. just saying, this is from experience with a 723 credit score,” he said.
But Ben did note that there’s a way to make potential down payment money work on a buyer’s behalf. “If you keep your down payment and apply it to the very first payment, [it cuts] into the principal faster. In return [this] mathematically lowers the interest charge over the term of the loan rather than paying mostly interest for the first year. And also positions the trade cycle just as fast,” he argued.
Under current guidelines, a 723 credit score is considered “good.”
Research suggests that depending on the bank, “Some lenders may even be willing to give you a lower rate if you have a significant down payment,” reports Bankrate. However, that source notes that other factors, like credit score and income, have a greater impact on the actual rate. So, while it can be a part of a larger negotiation, it’s not a guarantee.
The real way interest is impacted is simply by paying less of it, via having a shorter-term loan.
In an interesting twist to car buying, Joseph said, “Dealerships HATE getting pre approved from your own bank.” Motor1 reached out to Joseph for more information on this. He has not yet replied.
As to the veracity of the claim, there is a persistent rumor that dealerships don’t like it when a buyer arrives with a pre-approval letter in hand. This is because when a customer buys through a dealership’s approved lender, the dealership can make money on the deal.
Nerdwallet reports, “About 78% of dealer-arranged loans carry marked-up interest rates,” where the dealership tacks on an additional one or two percent to the loan. So, a pre-approval letter, in addition to giving the buyer more negotiating power (and the ability to walk away), might also be, by-the-numbers, the best deal. If nothing else, as Joseph noted in a subsequent video, you can open the car-buying conversation with a solid baseline.
Motor1 will update this article if Joseph replies to our inquiry.
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– The Motor1.com Team