When taking a loan out on a new car which would be most benifical........

[1badgvr4]

Story is I have a DD im selling now and another car both will be sold in the event I get approved for a loan. Last time I called my credit union they asked me would I be giving a down payment which I didnt understand because I didn't know if they meant giving it to them. Im question would it be wise to give it all to them in a DP or put all those funds into a seprate account and not have to worry about a car payment and insurance for a year so? Im also assuming having cash in hand on top of asking for the loan would help me get the loan easier.

[David88vert]

First off, the credit union is asking if you are going to pay any of the initial cost of the car without the loan. The money that you hand over for the car from your pocket (not the loan check), is the downpayment. Basically, they want to know if you are going to have any skin in the game.

You do need to keep some cash on hand. I would suggest that you sell one car, use that money for the downpayment, and get the loan check for the rest of the amount. Hand over the downpayment and the loan check to the person you are purchasing the car from, and take the car. Once you get the new car, sell the other car, and keep that cash as a reserve.

[1badgvr4]

Well then another question would be if one car was worth more than the other which car should be sold for downpayment money and reserve money. Im trying to decide if its better to have a cheaper car payment or have money on the side to pay it no matter the cost.

[David88vert]

The more money that you have in reserve, the better.

[cjhutch]

Well then another question would be if one car was worth more than the other which car should be sold for downpayment money and reserve money. Im trying to decide if its better to have a cheaper car payment or have money on the side to pay it no matter the cost.

Your question is worded strange. Paying as much money initially on a car equals a lower payment in the long run which should equal reserve money in your pocket. Even better is if you could still swing the payment and pay the car off faster. For example on most new cars people take out 60 or 72 month loans. The longer you have the car financed the more you pay in the long run because of interest rates. So if you could put down enough money where you only have to finance the car for 36 or 48 months that's even better. Of course you can still do a 60 month loan if needed and pay extra, but just make sure the company you finance through allows you to put the extra money towards the principal and not apply it to the interest. This is the approach I took with my car. I knew I could pay it off faster, but I chose to do a 48 month loan just for a security blanket in case something were to happen to me. I paid the car off in 34 months.