The $500 downpayment myth

I've been getting a lot of customers coming around asking to put $500 down towards the purchase of a car.

Theres only one problem. You can't really do that anymore. Whenever I say you need more money down most customers reply "Well a few years ago when I bought a car......"

Well a lot has changed in lending the past few years and continues to do so every single day. Its much harder to get financed as it is and $500 just doesn't do what it used to just a few years ago.

While there are places that will accept $500 down towards a car I feel like 98% will not and heres why.

When you purchase anything theres something called sales tax. This isn't something you can get around. The state wants its money and you have to pay them.

This is where the problem starts. Your taxes most of the time will be at least $500. So if thats the case you essentially put nothing towards the balance of the car. Why is this an issue? Well, the interest will begin eating you up immediately and your monthly payments will be higher. By only putting $500 down towards the car you're costing yourself money in the long run.

Also, because $500 doesn't have the same effect that its had in the past people aren't that commited to paying off a car if they only put that amount down. Because of this a good majority of the people who only put $500 end up letting the car go and falling behind on their payments.

Think about it. Wouldn't you feel more comitted to paying something off if you invested $2000 in it rather than $500? $2000 is still a decent sum of money and losing out on that investment is not an easy pill to swallow.

In my experience the people who only put $500 down on a car aren't thinking in a long term mind set. Their mind set is this is a temporary solution and in the back of their minds feel like they will give the car away.

The more money you put down up front the more money you will save in the long run.