Financing Q's
Hi all, Probably been asked before, but a search didn't seem to get me what I wanted. The wife and I are seriously thinking about pulling the trigger on a new trailer to replace our 2005 Hybrid. ...
Forum Discussion
poppin_fresh wrote:
It's interesting you mention a down payment.
I ran the scenario of borrowing $25k (to get a 10 year term) and putting a $2500 down payment to reduce the loan amount to the loan officer at the CU.
He said that the down payment does not reduce the amount borrowed. I would still have the same payment, based on borrowing $25k but a lump payment would immediately be made towards the principal.
That is great in that it reduces the back end of the loan, but that is not how I thought they worked...
That ISN’T how it works.
A down payment goes to the place you are PURCHASING FROM (IE the dealer), not the loan company.
Example, you want to buy a item that costs $25K, you give the dealer $2,500 cash as a down payment.
That means you would need to “borrow” $22,500 from the loan company instead of the full $25K. Makes a difference.
You get a check from the loan company for $22,500 and YOU "supply" the $2,500 in cash or check from your own money.
That is how I buy vehicles, I negotiate a sale price, then I pay a portion of the sale price from my own account and the bank loan covers the rest..
Example.
I negotiate a vehicle sale price of $44K out the door including taxes, title, plates.. I get a loan for $34K from a bank, I then write a check from my own account for $10K to cover what the bank loan does not.
I think what the Credit Union is talking about is if you applied $2,500 as a payment towards the loan after you have borrowed $25K.
That is a smart way to reduce the overall interest owed to the loan company and shorten the time you will pay back the loan.. But in your case not the angle you need at this time.
Down payments are useful in times where you may not qualify for a specific loan.
For instance when I purchased my home I qualified for a 30 yr mortgage with 10% down payment but I was not qualified for a 15yr mortgage that I wanted unless I put 20% or more down on the house as a down payment (which is what I did).
A down payment is nothing more than a small prepayment by the purchaser to the seller.
AFTER you have purchased the item you also can make additional payments to the loan company towards the principle amount you borrowed to help pay down the loan if you want. It is optional and is a great way to save some money in the long run of the loan.
