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How Much Should I Put Down On A Car?

How Much Should I Put Down On A Car?

For the handful of people who actually read my little blog it’s no secret that I binge any and every car-related article I can find.  And not just articles about cars themselves; I really enjoy reading other’s opinions about vehicle shopping, financing, and other important consumer information.  Then, being somewhat arrogant, I like writing out my take on those consumer related articles.

I recently stumbled across this recent post on Jalopnik about downpayments, and found it really informative, but lacking a few key things.  So, before I get into anything, I want to preface this by saying that this is my personal opinion, based on my somewhat limited years working in both automotive finance and sales.

One of the first thing the article gets into is how to use a loan calculator to grasp the full spectrum of your loan… only it doesn’t.  First, for the vast majority of us (read: less than perfect credit), we can’t/don’t know what interest rate we will have until we’ve gone car shopping… and–frustratingly–gone through the whole shopping process.  Sure, you can get pre-approved on a car loan from your local credit union or bank, but even then, there are usually stipulations regarding the year and miles, and most importantly, the Loan-to-Value ratio.  This is an important factor for all lenders and the cause of much frustration to many buyers.

What is Loan-to-Value?

Loan-to-Value is the difference between the selling price of the car and what the bank believes the car to be worth.  Banks typically use Kelly Blue Book or NADA suggested values, and not the vehicle’s ‘retail’ value, but usually its wholesale or lending value, and these are almost universally lower than what the car is selling for.  It’s important to note that neither KBB nor NADA actually sell cars and that markets fluctuate greatly, and neither of the two can really compensate for scarcity of a special model or its desirability.  Here is in Colorado Jeeps and Subarus sell for five to ten percent more than they do in warm, flats states like Texas.

For those with credit scores above 750, most banks will offer to loan out 120-130% of that value, which provides you room to finance the vehicle you want along with all associated taxes–something that can vary quite drastically from city to city here in Colorado–, as well as extended warranties and GAP insurance.  Depending on the price of the car that high loan percentage usually allows for the car and any extras to be fully financed without the need for a downpayment.

The unfortunate reality is that not all of this information is easily accessible.  Sure, you can google your tax rate, but different dealerships have different prices for their extended warranties (something I spoke about in a previous post), and depending on a vehicle’s miles and options, its value can change pretty drastically too.  And this doesn’t even account for trade-in values (whether you have equity in your trade or have to carry over a balance into the new loan).

All of this is important because many lenders offer better rates depending on the overall Loan-to-Value ratio.  Because there are so many variables it is hard to pinpoint an exact figure of percentage one should put down on a car loan.  I am sure, however, you’re probably thinking this all seems really shady, and yea, it can seem this way. It’s in this confusion where the car industry has earned such a terrible reputation over the years.  Preying on people’s lack of understanding and insight is as old as time.

So… how much should I put down??

Now that you’ve had a glimpse of the many moving parts, how do you figure out all of this secure the best loan for yourself?  The safest answer I can give is to really spend the time to come up with a budget you are comfortable with.  While those with new or poor credit should aim for a vehicle on the less expensive side, your options can become more limited, as banks like newer cars.

So, while you might find a fifteen year old Honda for less than ten grand, most banks don’t want to loan money on a vehicle that old because, statistically speaking, the older the vehicle, the higher the chances are that the car might have issues, and an unusable car is a leading reason people default on their loans.

With all of that said, to answer the question about how much to put down, I think the best answer is to look at your budget and make realistic choices about how much you can afford per month and what rates are available depending on your loan term.  I typically like to take the longest term before the rate increases, so I am locked in at a low monthly commitment, and then make extra payments to reduce the amount of interest I will pay.

Are Extended Warranties Worth The Money?

Are extended warranties worth the money?

I’ve spoken about this before but feel it’s something you can never have too much information on.  It’s a pretty safe assumption that we all know at least one person who “knows” warranties are just a scam dealerships use to get more money.  That same person is also the person who can confidently fix any issue that arise in a vehicle.  I thought like that for a long time. But that was also a long time ago, when cars were simple.  Also, the money I “saved” by doing the work myself was washed away by the time I spent and messes I made, so… yea.  To best understand why warranties are a good idea it’s important to understand modern cars.

What Has Changed?

Nowadays, the sheer multitude of advances in safety, emissions, power, and overall efficiency have made all modern cars extremely complex.  Sure, it’s no secret that European vehicles are more expensive to service–not that they are inherently more prone to issues–but because they are the cars pushing the boundaries of what’s possible in a road going vehicle.  Whether it’s the uncompromising blend of comfort, amenities, and mind-blowing off-road capabilities of a Range Rover or the also-uncompromising luxury, safety, and neck-destroying performance of an Audi S6, European vehicles have a clear goal: to do as many thing as perfectly as possible.

This trend is something we see across the entire spectrum of manufacturers.  Even the Japanese marques of absolute reliability like the Toyota Camry and Honda Accord are now loaded with safety, performance, and efficiency features, and while they are still built incredibly well, they’ll never be as indestructible as their older siblings from the ‘80s and ‘90s.  And the reason for the decline in lifespan is not due to less stringent quality standards.  They just have so much more  going on inside and behind the scenes.  And more parts means a higher chance for something to eventually go wrong.

Are Modern Cars Less Reliable?

No… and yes… This may be the most competitive time in automotive history.  If you need any proof of that, just look at the ever increasing varieties of models amongst manufacturers.  One company makes a niche model like a fastback SUV, and everyone else has to follow suit (see: all German SUVs).  And while it may seem like a big, well… pissing contest, it’s actually a really good thing.  Most models in a manufacturer’s lineup are basically the same vehicle, with just some minor changes to the body. All of the electronic and mechanical bits underneath the skin are the same. That means, higher production volumes for engines and transmissions, etc, which typically equates to problems getting sorted out early on.

Even with this high volume approach to building cars, they are still incredibly complex machines.  Anyone remember the struggles of driving cars from the ’80s or ‘90s in the snow? The traction control was basically just a sensor that pumped the brakes–not much help if you weren’t using snow tires.  Now though, cars are self-monitoring almost every aspect of every component in them. Those components are monitoring things like wheel slip, yaw, torque, steering angle, and more, and they’re doing it 100’s of times a second.  A second!  And if one of the 10,000-plus components fail, it’s going to require work.  So, yes newer cars are more prone to periodic issues, but they also do so much more.  If you want to drive a 1992 Toyota Camry with roll-up windows and no A/C for the confidence that the car will never stop running, go for it.  But, just like my old Nokia phone, while it was indestructible, I’d still take the periodic issues with my iPhone XS  over the Nokia all day long–and yes, I have a warranty on my iPhone.

So, yes.  I 100% believe in the value of an extended warranty, but because not all warranties are the same, it’s important for any consumer to do their homework.  Granted, that’s not always the easiest thing to do, so we’ve tried to help as much as possible by being 100% transparent about the details of any policy we sell.  But rather than ask you to just trust us just because we say we’re honest and transparent, we absolutely encourage you to deep dive into our online reviews.  And not just the good ones, but the bad reviews too.  See what people say about the products we offer.  Because, while nobody can be perfect all the time, how they deal with an issue is a telling sign of who they really are.  At least that’s my take.


How to know if you are buying a good used vehicle?

How to know if you are buying a good used vehicle?

Do I need to know about cars to be safe?

If experience has taught me anything, it’s that I should NEVER work on my, or anyone’s, car.  While I know enough to perform most basic maintenance, like changing fluids and replacing brakes, I always end up with a catastrophic mess and an entire day just gone–longer if you count the anger management sessions which follow.

Mistakes aside, I’m glad I spent the time to make them, because it gave me the basic understanding of what to look for when shopping for a car.  And by basic understanding I mean that I now know how little I actually know about cars. Arrogance squashed!

What do I need to know?

Well, a lot of it comes down to being diligent in you car shopping process, and another component is luck–sometimes things can go wrong with no prior warning.  But, mostly it comes from trust. Yes, I realize trust is not something the used car industry is known for, which is where that due diligence comes in.

An important thing to understand is how complex modern vehicles have become.  Even simple Toyota Corollas and Honda Civics can be equipped with a mind-boggling array of options and technological innovations.  And since just about every component in a vehicle is computer controlled, replacing components–even minor ones–typically requires factory diagnostic software.  The days of simply swapping out the old with the new are long gone.

The growing complexity and abundance of vehicles means that specialized mechanics are needed to properly perform routine service.  But there’s only so many vehicles a technician can stay familiar with. This is why you don’t see people taking their classic and antique cars to new-car dealerships’ service centers.

But that same mentality also applies to vehicles which aren’t that old–young even.  New car dealerships seem like the safest place to buy a used car if it is the same brand, right?  Well, that’s debatable for a number of reasons. Most notably is that while a big dealer certainly has the capability to perform any type of service, the vast majority of their business is in-warranty work.  So, after a vehicle reaches its four to six year mark, the service center sees less and less of that model. And since manufacturers make fairly significant changes every four or so years, the technician’s familiarity with that vehicle can fade.

To make matters more complicated, most service issues aren’t as simple as plugging the car into a computer and getting a precise “replace this.”  Rather, diagnostic computers will show what sensors are being affected by whatever the actual issue is.

This is where specialty shops really shine.  When you focus on a large volume of a limited selection of vehicles, predicting potential issues and performing the proper maintenance becomes much more fluid and efficient.  When it comes to purchasing a used vehicle, I think this is a great place to start. 

What about getting a pre-sale inspection?

This is never a bad idea, however, there are a few factors to consider.  If you a taking a car from one dealership to be inspected at another (which sells the same cars), what’s the likelihood that the dealership doing the inspection is going to waste a potential chance at selling you a car.  What do they gain in giving the green light on a consumer buying from a competitor?

Again, this is where specialty shops come into play.  There are numerous niche service centers which don’t sell cars, and so have nothing to gain other than hoping to potentially earn you as a service customer.

So… What should I take away from this?

Car shopping is a struggle and it requires due-diligence.  At the end of the day, there are a tremendous amount of variables to consider when shopping for a preowned vehicle.  The best advice I can give is to be patient and do your research.  Read a dealership’s reviews, not just the star rating, but the content–both good and bad.  Hop on a forum and ask what, if any, issues others with the same car have had. And be willing to spend some time in the dealership and feel out the authenticity of the staff.

No company is perfect.  That includes us (gasp!).  But that doesn’t mean we don’t strive to be a great as we can.  Our view is not to smooth-talk our customers into a sweet deal for ourselves.  We are playing the long game.  We want to provides such an amazing experience and deals that we can earn your business again and again.  That’s not an achievable notion if we are setting our customers up for failure by selling bad cars or unreasonable rates and fees, or any of the countless other means which have created the negative image of this industry.