When you’re working out a Toyota financing plan, it can be overwhelming trying to decide how much money to put down. A larger down payment reduces your payment every month, but with the complexity of modern budgets, it’s not always clear what’s the right amount. Luckily, there’s a simple rule of thumb to follow when you talk through your plan with our team at Hall Toyota Virginia Beach.
The 20/4/10 Rule
Older drivers are probably familiar with the 20/4/10 rule: that you should put about 20% down on a new car, keep the term under 4 years, and spend no more than 10% of your income on transportation. For modern buyers, finding a plan that meets the latter two criteria can be tough, but the down payment advice is still accurate. A 20% down payment is a great amount to target when budgeting for a new car.
Why Make a Down Payment?
If you’re a well-qualified buyer, you may get a Toyota finance offer that includes a zero-down option at signing. This can be attractive, but keep in mind that your down payment gives you two vital advantages: it lowers your monthly payments, and you’re immediately building equity in your car. This is important because a new car starts to depreciate as soon as you drive it off the lot, so without a head start, you can end up “upside-down” on your loan.
What Does Being Upside-Down on a Loan Mean?
Putting less money down can quickly and easily lead to owing the lender more money than the car is currently worth. Depreciation is heaviest early in your car ownership, so this may even out as you continue paying off your loan. In any event, we suggest folding GAP insurance into your finance plan so if you have an accident, the car’s replacement value is covered instead of just the depreciated value.
Plan Your Toyota Financing in Virginia Beach, VA
Carefully planning the different phases of your Toyota financing is one of the most important steps towards getting behind the wheel. Talk to our team to explore your options at our Toyota dealership in Virginia Beach. Explore our lineup, apply for financing, and take a test drive today!
