Deciding on down payment amount?

[bhuether]

I have been driving myself lately trying to figure out how much of a downpayment to put towards a new car.

The car price is $45K

I can get 3.99% for 60 month loan or 4.75% for 72. Both relatively good rates.

The way I have approached the analysis is to write a script that compares 4 scenarios after 6 years. It considers my current mutual funds worth, considers what I could invest per month if I didn't buy a car and then adjusts the monthly investment amount based on loan payments.

1) No $ down, 60 month loan - so in this case the last year factors in increase of my monthly investing since the car will be paid off.

2) Same as above but 72 month term

3) Same as 1 but factoring in $8K downpayment

4) Same as 2 but with 72 month term

I assume a moderate return on my investments over the next 6 years of 6%

Prett much any way I slice it, it suggests that option 1 is the best. Seems the only way downpayments make sense in terms of increased worth of assets in 6 yeras is if the investment return rate is 3% or lower. People always talk about loan interest being pure evil and the corresponding fiscal sense of making a large downpayment, but the numerical analysis does not support that (unless your investment returns are really bad - which I know - there is no way to predict the future...)

So, what would you do? Please help me decide...

thanks,

Brian

[Ms_Margaret]

A down payment is an indication to a lender that you’re serious about buying this car. You have some financial wherewithal and you aren’t planning on defaulting on the loan if you have cash involved. In a nutshell, the larger your down payment, the lower the interest rate on your loan is likely to be.

Generally, I encourage people to have at least a 20% down payment when making a car purchase, and anything above that is good as well. For example, on a $20,000 car loan at 6% interest over five years, every 1% of down payment is worth $3.87 less on your monthly payment and an overall interest savings over the life of the loan of $32.20. This, of course, assumes that the increase in down payment means no change in interest rate - a higher down payment will reduce your interest rate, depending on the offering from your lender. It also doesn’t take into account that some of your down payment is actually interest earnings if you’ve been saving it up over time.