A down payment is the money that you pay upfront towards a vehicle purchase. It can be any combination of cash and a trade-in. And the larger the down payment on your vehicle, the more you’ll save on your monthly payment and in interest. A larger down payment means a smaller principal for interest to accumulate on.
Use Bankrate’s auto down payment calculator to estimate how much money you can save in interest, as well as what your monthly loan payment will be, based on the amount of the money you bring to the table.
How much should you put down on a car?
A down payment between 10 to 20 percent of the vehicle price is the general recommendation. But if you can afford a larger down payment, you can save even more money on interest payments over the life of the loan. By dropping the amount financed, you save some even before you start negotiating the car price.
For drivers with poor credit, a down payment can prove to be instrumental in gaining approval and receiving competitive rates. It is an excellent way to show potential lenders your commitment to the purchase and paying the loan off. If you still can't get a great rate when you first buy with a down payment, you may be able to refinance later for a better rate.
In either case, be careful while shopping. By making sure the vehicle fits, and not just the payment, you will save in the long run.
What to consider when deciding on a down payment
Consider the differences between a new and used vehicle when determining how much money to put down.
Down payment on a new car
New vehicles depreciate at a much faster rate than if you were to purchase used. A high down payment of 20 percent or more can help protect you from that loss of value by making sure you have more equity in the car than what you owe. However, just because you can pay more cash upfront doesn't mean you should sign off on a vehicle that you cannot truly afford. Make sure your monthly payments, insurance and fuel costs are within your monthly budget.
Down payment on a used car
A used car, on the other hand, requires a less steep down payment. Because the value of a used vehicle has already undergone most of its depreciation, your down payment should be a minimum of 10 percent. However, just as with a new car, the higher the down payment is, the more you will save on accumulated interest.
Down payment on a leased car
A large down payment can be helpful when buying a new car, but this approach is typically a bad idea when leasing a vehicle. If something happens to your leased car, your insurance will reimburse the leasing company rather than you, and you won’t get a refund for your down payment. What’s more, one advantage of leases is lower up-front costs. Providing a large down payment defeats this benefit.
The bottom line
If you do not currently have the financial stability or urgency for a new vehicle, it may be worth your while to save for a down payment before shopping for your vehicle. Consider creating a budget with that 10 to 20 percent number in mind before setting your sights on a vehicle loan.
FAQs
A down payment is calculated as a percentage of the final purchase price. For example, if a car you're looking at is $30,000, here are a few different scenarios based on the percentage you may want to put down: A 5% down payment is $1,500. A 10% down payment is $3,000.
Is 50% too much of a down payment for a car? ›
If you want to, you can definitely make a 50% down payment on a car if you have the cash. It's uncommon, but as long as you finance at least the minimum amount – usually $5,000 if you have bad credit – lenders don't have a problem with you making a really big down payment.
What is a good down payment for auto loan? ›
How much should you put down on a car? One rule of thumb for a down payment on a car is at least 20% of the car's price for new cars and 10% for used — and more if you can afford it.
Is $4000 a good down payment for a car? ›
How much should a car down payment be? Financial experts recommend a down payment of at least 20 percent when financing a new or used vehicle. This amount is steep for many, especially with the recent spike in new and used car prices. For example, a 20 percent down payment on a $40,000 vehicle is $8,000.
How much is a down payment for a $30000 car? ›
Consider putting at least $6,000 down on a $30,000 car if you're buying it new or at least $3,000 if you're buying it used. This follows the guidelines of a 20% down payment for a new car or a 10% down payment for a used car.
Is $1500 enough for a down payment on a car? ›
There is no true one-size-fits-all answer to how much you need to put down on a vehicle. However, a good rule of thumb when buying a new vehicle is to have your down payment by 20% or more of the total purchase price. If you are buying a used vehicle, you may be able to put 10% down.
Is $2000 enough for a down payment on a car? ›
In general, you should strive to make a down payment of at least 20% of a new car's purchase price. For used cars, try for at least 10% down. If you can't afford the recommended amount, put down as much as you can without draining your savings or emergency funds.
What credit score is needed to buy a car? ›
Key Takeaways. Your credit score is a major factor in whether you'll be approved for a car loan. Some lenders use specialized credit scores, such as a FICO Auto Score. In general, you'll need at least prime credit, meaning a credit score of 661 or up, to get a loan at a good interest rate.
How low is too low for a down payment? ›
Some lenders require a 5 percent minimum. Keep in mind, too, that to avoid PMI, you'll need to put down at least 20 percent. If you can't afford that high of a down payment, though, know you won't pay PMI forever. Once you reach 20 percent equity in your home, you can request that your lender remove PMI from your bill.
What is considered a high car payment? ›
According to experts, a car payment is too high if the car payment is more than 30% of your total income. Remember, the car payment isn't your only car expense! Make sure to consider fuel and maintenance expenses. Make sure your car payment does not exceed 15%-20% of your total income.
As a general rule, aim for no less than 20% down, particularly for new cars — and no less than 10% down for used cars — so that you don't end up paying too much in interest and financing costs. Benefits of making a down payment can include a lower monthly payment and less interest paid over the life of the loan.
Is it smart to put money down on a car? ›
Key takeaways. Down payments reduce the amount of money you must borrow and, thus, the interest you pay while repaying your car loan. Experts recommend a down payment of at least 20 percent. Larger down payments may prevent becoming upside-down on your loan.
Is $3,000 enough for a down payment on a car? ›
Down Payment Rules to Live By
A good rule of thumb for a down payment on a new car loan is 20% of the purchase price. A down payment of 20% or more is a way to avoid being “upside down” on your car loan (owing more on the car than it's worth).
Can you use a credit card for a down payment on a car? ›
Can you use a credit card for a car down payment? Putting a car down payment on a credit card is an option that many dealers are open to. Dealers may be more willing to allow this type of payment for the total amount, or a partial amount, of your car's down payment.
How to make a large down payment on a car? ›
Use a money order or electronic funds transfer (ETF): Because most dealerships won't accept a large down payment in physical cash, consider using a money order to certify the funds or have your bank transfer them electronically.
How much should you put down on a 25000 car? ›
As a general rule, you should pay 20 percent of the price of the vehicle as a down payment. That's because vehicles lose value, or depreciate, rapidly. If you make a small down payment or no down payment, you can end up owing more on your auto loan than your car or SUV is worth.
How much is a downpayment on 200000? ›
To purchase a $200,000 house, you need a down payment of at least $40,000 (20% of the home price) to avoid PMI on a conventional mortgage. If you're a first-time home buyer, you could save a smaller down payment of $10,000–20,000 (5–10%).
How much is a $25,000 car payment? ›
Example: A six year fixed-rate loan for a $25,000 new car, with 20% down, requires a $20,000 loan. Based on a simple interest rate of 3.4% and a loan fee of $200, this loan would have 72 monthly payments of $310.54 each and an annual percentage rate (APR) of 3.74%.
How much should I put down on a 40k car? ›
It's good practice to make a down payment of at least 20% on a new car (10% for used). A larger down payment can also help you nab a better interest rate. But how much a down payment should be for a car isn't black and white. If you can't afford 10% or 20%, the best down payment is the one you can afford.
