April 25, 2012
SANTA MONICA, Calif. -U.S. consumers averaged an 11 percent down payment on new car purchases in 2011, according to Edmunds.com. The average is only slightly more than half of Edmunds.com’s recommended 20 percent down payment, and puts buyers at risk of immediately owing more than the car is worth.
“Many people want to pay just enough cash down in order to get the payments and interest rate to a point that fits their budget and keep more cash in their pockets,” says Edmunds.com Consumer Advice Editor Ronald Montoya. “But by placing a larger down payment, a new car buyer can offset the vehicle’s initial depreciation and earn equity in the car sooner.”
Last year’s 11 percent average amounted to $3,263 per vehicle, based on the average transaction price of $29,509 on a new car in 2011. A geographical analysis found that California buyers placed the highest down payments, both in terms of cash value and percent of transaction price: the Golden State averaged $5,139 – or 17.8 percent – in new car down payments last year. At the other end of the spectrum, Mississippi buyers put the least amount of cash down on their new cars ($2,152 per vehicle), while Oklahoma buyers offered the lowest down payment percentage (6.8 percent per vehicle). A full heat map of average cash down payments by state can be found at http://www.edmunds.com/car-buying/how-much-should-a-car-down-payment-be.html.
Edmunds.com advises consumers to keep the following points in mind when considering how much to leave as a down payment on their next new car:
No Downside to a Bigger Down - There’s no such thing as a down payment that’s too big. If your budget can accommodate it, making a bigger down payment will allow you to choose a shorter finance term, which will save you money in interest charges.
Consider Depreciation – It’s important to remember that your new car starts to depreciate the moment you drive it off the lot. By the end of the first year, Edmunds.com estimates that a new car depreciates an average of 21.8 percent.
Make a Bigger Monthly Payment – If you cannot make a larger down payment on a new car, consider making bigger monthly payments. This will help you build equity in the vehicle, which is what you’d need in the event of a theft or an accident that totals the car. It will also help you pay off the car sooner.
Different Rules for Used Cars – Like new cars, used cars depreciate, but at a much slower rate. Edmunds.com recommends that used-car shoppers make a down payment of at least 10 percent. That should be enough to cover a used car’s one-year depreciation
Source: Business Newswire / Edmonds