Benefits of making a down payment on a car Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, through allowing users to conduct research and compare information for free and help you make financial decisions with confidence. Bankrate has agreements with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this site are from companies who pay us. This compensation can affect the way and when products are featured on this website, for example for instance, the sequence in which they appear within the listing categories in the event that they are not permitted by law. This applies to our loan products, such as mortgages and home equity and other home loan products. However, this compensation will not influence the content we publish or the reviews that you see on this site. We do not include the universe of companies or financial offerings that could be open to you. DjelicS/Getty Images

4 min read Published September 21 2022

Written by Allison Martin Allison Martin Written by Allison Martin’s work started over 10 years prior to that as a digital content strategist. She’s been featured in a variety of top financial publications, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain confidence to control their finances through providing precise, well-researched, and well-studied information that breaks down complex topics into manageable bites. The Bankrate promise

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Experts suggest a down payment of at least 20 percent for an automobile that is brand new, or 10 percent if you’re purchasing a used. It’s not a bad idea to make a bigger deposit to get the most savings from interest, but only if you have the money to.

5 advantages of making a down payment Down payments are typically required by lenders. They typically require at least 10 percent down. Even if it’s not required, it is nevertheless worthwhile. It will help you save money every month and allow you to pay less interest. 1. A lower monthly installment As putting money down decreases the amount you’ll need to pay, you are likely to pay less every month, which means lower monthly payments. It’s simple to understand the mathematics. Use an to estimate monthly payment. If you borrow $30,000 at 5 percent interest over up to 48 month, you’ll pay $691 a month. If you make a 20% down payment of $6,000, you’ll lower the amount you’ll need to borrow to only $24,000. And that results in the monthly installment of $553. 2. More equity starting out Equity is the amount of equity you own for a vehicle and its potential price at sale. The larger down payment will boost your equity since you don’t have to finance more by an lender. Cars are a . When values of the vehicle decreases, you’re more likely to go upside-down on your loan which means you are owed more than what the value of your vehicle. A higher down payment will protect against depreciation because the equity acts as buffer. Because you own a larger part of your vehicle from the start with a higher down payment, you’re less likely to get stuck in the loan that costs more than you could sell your car for. 3. A lower interest rate The most significant advantage of a substantial deposit is the fact that it decreases the amount you need to borrow. If you are able to borrow less, you have to pay less in interest. More money in your pocket — and less in the lender’s pockets — is always a good thing. Like the example of the monthly payment 20 percent down payment could make a significant difference in the price for an automobile loan. If you take out $30,000 at a 5 percent interest rate for two years, then you’ll pay $3,162 in interest. With a $6,000 down payment and a loan of $2,530, you’ll pay only $2,530 over the course of the loan. 4. Potentially reduced rates Some lending institutions might offer you the opportunity to get a loan if you’ve made a significant down payment. Because a downpayment shows you have the ability to manage money it will make you less risky to the lender. There are numerous factors that influence your interest rate, including credit score and income, so this is far from guaranteed. Still, a large down payment is something lenders consider and can assist in overcoming areas where you aren’t as confident in. 5. A higher acceptance rate if you have excellent or great credit, not putting any money down may not be a major issue. But a lower credit score could mean you’ll be charged a higher rate or, worse, be turned down for a loan. If you’re able to pay a down payment, you could strengthen your approval odds or convince the lender to offer you better financing terms. The experts recommend that you put at least 20 percent of the cost. The most popular recommendation is to deposit 20 percent or more on the vehicle. More, of course, is preferable. The less you need to finance the less you have to finance, the better. However, it’s a lot of money. In 2022 the average new car price was at just under $40,000 in the month of June as per Kelley Blue Book (KBB). A down payment of 20 percent on that is equal to $9,600. Even used vehicles averaged to — that amounts up to $5,600 for a percent down payment. These are just averages, and you’ll definitely have the ability to find less expensive options. Just know that prices continue to go up because of shortages in the world of vital parts like semiconductors. You certainly don’t want to deplete your savings for a downpayment. Make use of rebates when you are looking to buy new or used, and look around to find a . Selling it or trading it into a dealer will go a long ways to getting you at that coveted 20 percent mark. If you absolutely can’t afford 20 percent, it’s okay to put down as little at 10 percent. Certain dealers might only require a $1,000 down payment. Whatever the case, make sure to deposit as much as you can to keep from taking out a huge loan that could leave you with a huge debt. Avoid putting nothing down You must always make a down payment when buying an automobile. Certain experts suggest it may not be needed in the event that you’re able to qualify however the majority of people won’t qualify for that. Dealers will offer financing with no down payment because they stand to make the most in interest. It is, after all, the exact opposite of a substantial down amount. Even with low rates, you’ll end up needing to finance more. That’s more interest to pay and a greater likelihood of becoming . A zero-down offer may also be accompanied by a plan to help offset the cost of monthly payments. This is the biggest trap. The longer the loan period, the more you have to pay the lender. Next steps The more you pay upfront and the more secure you will be. A down payment of 20 percent is the standard, but you can always put down more when you are able to afford it. Make sure you don’t pay more than 10% or $1,000 — especially when you’re in a position to an existing credit card, so that you can still enjoy a favorable interest rate. Take the time to compare automobile loans and look for financing before you begin your car shopping. In this way, you’ll know exactly how much you can afford and also how much you’ll need for a large down payment. Find out more

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Allison Martin’s writing began over 10 years ago, as a digital content strategist, and she’s since been published in various top financial media which include The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are dedicated to helping their readers feel confident to control their finances by providing precise, well-studied details that cut complex subjects into bite-sized pieces.

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