Zero Downpayment VS xx% Downpayment
I’m going to buy a new car in several months and I’m trying to figure out how much down payment I should have. I’ve heard tons of different answers from different people. What’s your take?
One rule of thumb that you need to remember when buying a car it is always depreciating in term of values. Logically a larger down payment reduces the size of your monthly payments.
Let’s say I want to buy a car that price RM60K and paid the down payment worth 10% of the car market price. The monthly installment should be RM664.25 if given the interest rate is at 3.65% per annual:
Car Purchase Price (RM) *: 60 000
My Down Payment (RM)*: 6 000
Interest Rate in % *: 3.65 per annual
Repayment Period in Months *: 108
Monthly Installment: RM 664.25
But I changed my mind. I want to go with zero down payments. The monthly installment now should be at RM 738.06.
Car Purchase Price (RM) *: 60 000
My Down Payment (RM)*: 0
Interest Rate in % *: 3.65 per annual
Repayment Period In Months *: 108
Monthly Installment: RM 738.06
At the end of the 9 years tenure I have been paying to the bank RM71 739 if i go for the option 1 and RM 79 710.48 for option 2.Meaning i have been paying RM 7971.48 extra to the bank on top of the interest.
Remember that I still have RM6000 that was initially plan to use as a down payment but was canceled? To make it interesting, I decided to invest the RM6K into Amanah Saham Bumiputera with no annual addition. If they can give me a consistent return of 6% per year in 9 years the amount will be RM 10,136.87.Minus the extra RM7971.48 that I have paid to the bank with the option 2 I have choose, actually I have already made an extra of RM 2165.39 with the principal untouched !
There’s still a downside on this strategy. Let’s say I go onto the lot with no down payment, pick out a brand new car, and drive it off the lot. The second I drive off the lot, your car depreciates about 20%. Now, I drive it around for a month and suddenly I lose my job – and I realize I need to sell this expensive new car.
The best I’ll probably be able to get for the car is about 80% of the asking price, but if I’ve made no down payment, even selling the car right now will leave me with 20% of your loan unpaid and nothing to show for it. This is called being “upside down” in a car loan, and it’s something to avoid if all of us can and please don’t buy a car with zero down payments without you having any saving in hand with at least of 10% of the car price.
Never in the automotive world of Malaysia, the car is worth the price.
