Want to buy a car but don’t have the cash needed to cover the cost upfront? You may have considered applying for a car loan. After all, that’s what car loans are designed to do. They provide car buyers with finance to cover the cost of buying a car, which they then pay back over a period that suits them.
As you would expect, there is plenty to think about as you compare car loans. Repayment periods, interest, fees. What extras are available. How affordable the car loan is. How flexible it is.
What you may not have thought to consider, however, is your deposit.
The deposit you put down when buying a car can have a huge effect on your loan, affecting everything from its affordability to how much you end up paying in fees and interest.
In this post, we aim to investigate all that, comparing various car finance scenarios to find out just how much you could save on your car loan, simply by putting up more upfront on your deposit.
Example 1: No Deposit
Let’s say you want to borrow $30,000 to buy a car. You have no deposit.
• Opting for a five-year car loan with a fixed rate of 10% p.a., your repayments would be $637 per month, and you would pay your lender $8,245 total in interest.
• Opting for a three-year car loan with the same rate, your repayments would be $968 per month, and you would pay your lender $4,849 total in interest.
Example 2: $5,000 Deposit
You are still looking to buy that $30,000 car, but you are putting down a $5,000 deposit.
• With the same 10% p.a. fixed interest rate, your repayments on a five-year car loan would be $531 per month, and you would pay a total of $6,871 in interest to your lender.
With this option, your repayments would be $106 less per month than the no-deposit five-year option. You would also pay $1,374 less in interest overall.
• On a three-year car loan under the same conditions, your repayments would be $807 per month, and you would pay $4,040 in interest overall.
With this option, your repayments would be $161 less per month, and you would pay $809 less in interest over the length of the loan.
Example 3: $10,000 Deposit
With your eye still on the same $30,000 car, you decide to stump up a $10,000.
• On a five-year car loan with the same 10% p.a. fixed rate, your monthly repayments would be $425. You would pay $5,496 in interest to your lender.
With this option, you would pay $212 less on your monthly repayments than the no-deposit five-year option, and you would pay $2,749 less in interest.
• On a three-year car loan at 10% p.a., your monthly repayments would be $645, and your total interest cost would come to $3,232.
Compared to the no-deposit three-year option, you would pay $323 less on your monthly repayments, and you would pay $1,617 less in interest.
And fees? Let’s say you decided to put down a larger deposit on your car. As you can see from the examples above, not only would you save on interest, you would also enjoy lower monthly repayments. With that in mind, you could choose to reduce the length of your loan to pay back your loan faster.
This would not only mean you pay even less in interest on that shorter loan, you could also pay less in fees (if you opt for a car loan that charges monthly fees).
The numbers are clear. By putting up a larger deposit, you can save big on interest, while creating a more affordable repayment schedule to better fit your budget.
Want to find out how much you could save? Contact the team at Car Loan World and we can talk over the details with you.