Some banks may have lending thresholds for its lowest interest rates, meaning you must borrow a certain amount of money against the vehicle's bank-determined value. However, most banks offer the same interest rate for terms of 24 to 60 months, but raise rates for loans longer than five years. Banks differ in their guidelines and offers, so ask your lender about its down payment requirements.
Low Rate Options
Most banks offer the same rate for terms up to 60 months. Call around to different banks to check rates. Used car loans usually warrant a higher rate than new cars. You may not have to put any money down to obtain the bank's lowest rate, although you must have excellent credit. Special rates offered by manufacturers for new cars, which are as low as zero percent, often do not require a down payment. For banks that do require a lending threshold for a low rate option, your down payment requirement depends on the vehicle you choose.
Budget Accordingly
Consider your monthly payments and overall interest rate. If you take out a zero percent loan, you may put down as much as you'd like to achieve a lower payment and increase your vehicle's equity. Use an auto loan calculator (see Resources) to gauge your total loan payback amount based on your interest rate to determine your best option. If a bank offers 5.9 percent without a down payment, you may not see much of a monthly payment or overall payback amount difference for a 4.9 percent rate offer without a down payment.
Early Payoff Option
Talk to your lender about early payoff options. You can eliminate some of your interest charges this way. Make sure your lender does not charge a fee for paying off the loan early. If you find that paying a large down payment is difficult, consider paying off the loan early. You can also take out a shorter term or increase your monthly payments to lessen interest charges. Banks have different rules regarding early payoff, so ask about penalty fees. To pay off the loan early, some banks may require you to make a separate payment toward principal, while others charge interest upfront.
Refinancing
If your approved rate is higher than you'd prefer, you can always refinance your vehicle in the future. Refinancing an auto loan allows you take advantage of better rates; you can apply to a new lender for the amount of your current loan's payoff amount. Once approved, you can shorten your term or obtain a lower rate and lower monthly payment. If your credit does not currently qualify for the best rates even with money down, you can apply for a refinance when your credit has improved.
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