Down payments are helpful

Nobody likes down payments. It’s true that forking over a ton of dough in order to pay for a car is not a great feeling. Many dealerships will advertise cars for “no money down,” and this is usually an attractive offer. That’s because many buyers like the instant gratification of driving off in a new car without having to pay anything for it.

Yet these types of deals are often more helpful than harmful. First, they usually come with high interest rates, meaning they’ll be more difficult to pay off over time. They’re also typically longer than average car loans, meaning buyers will have the car for awhile.

But most importantly, no money down means a lot larger loan is required. This situation typically leads to a loan being “upside down,” meaning that the buyer owes more than the car is worth. Small monthly payments and no money down may seem nice, but if the buyer is still paying off the loan five years from now, their car will be worth next to nothing and they’ll still be making payments.

When negotiating, buyers will have a lot of numbers to keep track of. One to keep an eye on is the length of the loan. Stretching a loan from 24 months to 36 months is ultimately a huge difference.

A buyer should use a car payment calculator to ensure that the terms of their loan are desirable. Try filling in a large down payment with a shorter lease as opposed to a small down payment on a larger lease. Then factor in that a car will be worth significantly more three years from now than five years from now and it’s easy to see why many “no money down” offers are a bad deal.