Should You Put Money Down on Your Next Car Purchase?

Ralph Estep Jr.:
00:00

Welcome back to the show where we tackle your financial questions through the lens of our Christian faith. I'm thrilled to be diving into another Financial Friday with you all today. You know, sometimes the biggest financial decisions come disguised as everyday choices. We're bombarded with options, from choosing the right dessert at the grocery store—yes, the struggle is real, I love dessert, but as a type two diabetic, I probably shouldn't be eating it—to navigating the complex world of car buying. Speaking of cars, have you ever stood in a dealership, staring at a shiny new vehicle, and felt that wave of uncertainty wash over you? You know, that feeling of "Should I? Or shouldn't I make a down payment?" It can be a real head-scratcher.

Ralph Estep Jr.:
00:45

Well, fear not, my friend, because today we're tackling that very question head-on. We're going to break down the pros and cons of down payments, explore whether you absolutely have to put anything down—spoiler alert: sometimes you don't—and even delve into the mysterious world of gap insurance. So buckle up—I thought that was funny since we're talking about cars—grab your favorite beverage (now, don't drink and drive), and get ready for a ride through the ins and outs of car buying, all while keeping our faith at the forefront. Let's get started.

Ralph Estep Jr.:
01:19

Before we jump into today's topic, I want to give a big shout-out to everyone who tuned in yesterday for an eye-opening episode on five ways you might be cheating on your taxes and how to make it right with God and the IRS. We covered some sneaky tax traps that many Christians fall into, and I hope it empowers you to approach your finances with even more integrity and honesty. And speaking of empowering conversations, tomorrow is going to be a real treat. We have a very special guest joining us: David Chuck, a certified financial planner, who's going to share his incredible insights on how to increase the value of your business. Whether you're a seasoned entrepreneur or just starting out, you don't want to miss this value-packed episode.

Ralph Estep Jr.:
02:07

Now, today's dose of wisdom comes to us from the book of Luke, chapter 14, verses 28 to 30. And it says, "Suppose one of you wants to build a tower. Won't you first sit down and estimate the cost to see if you have enough money to complete it? For if you lay the foundation and are not able to finish it, everyone who sees it will ridicule you, saying, 'This person began to build and wasn't able to finish.'"

Ralph Estep Jr.:
02:33

Wow. This passage emphasizes the importance of planning ahead, counting the costs, and making sure you follow through on your financial commitments before taking them on. When it comes to deciding on the down payment for a car purchase, this means carefully evaluating your budget, not overextending yourself, and choosing a down payment amount and loan terms that you can realistically manage for the duration of the loan. It's all up to you. Just as building without a plan invites ridicule, taking on an auto loan without forethought can lead to financial hardship down the road. But wise planning allows you to make sound decisions that honor God with your finances. And that's the goal of this show.

Ralph Estep Jr.:
03:20

Alright, let's dive into our main topic: to downpayment or not to downpayment. That is truly the question. When you're buying a car, the downpayment is the initial lump sum you pay upfront, reducing the amount you need to finance. It's a pretty simple process. Think of it as putting some skin in the game. Now, the million-dollar question—or should I say the thousand-dollar question—is: how much should you put down? Well, the honest answer is, it depends. I bet you weren't ready for that answer. I know, I know—not the straightforward answer you were hoping for, right? But hear me out. There are several factors to consider. So let's break it down.

Ralph Estep Jr.:
03:59

Number one: your financial situation. This is the big one. You've got to take a good, hard look at your budget. How much can you comfortably afford to put down without draining your emergency fund or sacrificing other financial goals? Remember, it's not a race, folks. It's better to start with a smaller downpayment and maintain a healthy financial foundation than to stretch yourself too thin. So here's an actionable step: sit down this weekend, or over the next few days if you're thinking about buying a car, and review your budget. See how much you can realistically put towards a down payment without jeopardizing your financial stability.

Ralph Estep Jr.:
04:39

Let's look at number two: interest rates and loan terms. Here's a little secret a lot of people don't know: a larger downpayment often translates to lower interest rates and better loan terms. You might ask, "Why is that, Ralph?" Because lenders see you as less risky. When you have more skin in the game, you're more likely to repay the loan if you've already invested a significant amount upfront. When I ran a credit union in my past life, I would always look more positively on a loan deal where the borrower was putting some money on the table.

Ralph Estep Jr.:
05:11

So here's another actionable step: before you even step foot into a dealership, shop around for the best interest rates and loan terms from different lenders, including banks and credit unions. Compare how different downpayment amounts affect your monthly payments and the total interest paid over the life of the loan. It absolutely amazes me how many people get trapped in the finance manager's office and just take what they're given. But you need to understand there are options, and the dirty little secret is that most car dealerships make their highest profit margins in the finance office. Those folks are generally the most well-paid employees of the crew because they are a super-profit center. That may be a topic for another show.

Ralph Estep Jr.:
05:55

Let's move on to number three: depreciation. Cars are notorious for depreciating, meaning they lose value over time. A larger downpayment can help offset some of that depreciation, especially in the early years of ownership. Of course, some would counter that you're just throwing that downpayment money away since depreciation starts as soon as you're pulling off the car lot.

Ralph Estep Jr.:
06:18

So, let's look at number four: GAP insurance. Well, GAP insurance stands for Guaranteed Asset Protection. It covers the difference between what you owe on your car loan and what your car is actually worth if it's totaled or stolen. If you make a small downpayment or no downpayment at all, GAP insurance can be a lifesaver. I will tell you, I generally always buy one of those policies, but don't pay full price for it. This is a cost you can most definitely negotiate. Maybe I need to start a new business of being an auto buyer coach—got some great skills in that area. Had to think about that one. Well, here's another actionable step: ask your insurance agent about GAP insurance and whether it makes sense for your situation. Yes, you can buy GAP insurance outside the dealership from many insurance companies. And as I said, don't be afraid to negotiate the price.

Ralph Estep Jr.:
07:12

And finally, number five: your peace of mind. This is often overlooked, but it's crucial. Some people sleep better at night knowing they owe less on their car. If a large downpayment brings you peace of mind, it might be worth it, even if it means delaying your purchase a bit longer. In the end, you have to do what you think is best and do what works best for you. Now, let's address some common questions about down payments.

Ralph Estep Jr.:
07:38

"Ralph, do I have to put anything down?" Well, the short answer is: not always. Some dealerships offer zero-down financing options, especially for buyers with good or great credit. However, you've got to keep in mind that these deals often come with higher interest rates and longer loan terms, which means you end up paying more in the long run. You have to understand your options and the fine print and understand the real total cost of purchasing that car.

Ralph Estep Jr.:
08:06

Let's look at another question: "Ralph, can I get a better rate or better term if I put some money down on the vehicle?" This is simple, folks: absolutely. As we discussed earlier, lenders love to see that downpayment money. It shows them that you're serious about this purchase and committed to repaying the loan. A larger downpayment can be a powerful negotiating tool to secure a lower interest rate or even a shorter loan term, which ultimately saves you money over the life of the loan.

Ralph Estep Jr.:
08:34

You know, as Christians, we're called to be good stewards of the resources God has entrusted to us. That includes our finances. Making wise decisions about car buying, like carefully considering our downpayment options, is all part of being faithful stewards. That wraps up another Financial Friday here on the Ask Ralph Show. I hope you found this episode helpful as you navigate the exciting but sometimes overwhelming world of car buying.

Ralph Estep Jr.:
09:00

Remember this: the decision of whether or not to make a downpayment is a personal one. There really is no one-size-fits-all answer. So before we go, I want to remind you to head over to askralphpodcast.com and subscribe to our email list. If you do that, you'll get exclusive content, bonus tips, and be the first to know about upcoming episodes and guests.

Ralph Estep Jr.:
09:21

And hey, while you're there, why not send me one of those burning financial questions you have? This show is for you, and I'm here to help you master your finances God's way. And don't forget to share this episode with a friend or family member who might be wrestling with this very decision now or in the future.

Ralph Estep Jr.:
09:38

Let's spread the knowledge and empower each other to make wise financial choices. And as I always say, until next time, stay financially savvy, and God bless you on this Friday.