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.
What is a good down payment for auto loan? ›
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.
How much should I put down on a 30k 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? ›
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.
Is $2000 enough for a down payment on a car? ›
If you're considering a car that costs $25,000, putting down between $2,000 and $4,000 would be wise. However, the true answer to this question depends on your negotiation strategy. If you can negotiate a lower price or better terms, putting more money down may not save you much interest.
How much should I put down on a 20k 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? ›
The credit score required and other eligibility factors for buying a car vary by lender and loan terms. Still, you typically need a good credit score of 661 or higher to qualify for an auto loan. About 69% of retail vehicle financing is for borrowers with credit scores of 661 or higher, according to Experian.
What is the best way to pay down payment on a car? ›
Cash is typically the most cost-effective way of making your down payment. With cash, you are more likely to be able to bypass a dealership's convenience fees, which can be as high as 4%.
Is it smart to put money down on a car? ›
Down payments are usually a necessity. Lenders frequently want at least 10 to 15 percent down. And it may be better for your finances to put down even more. After all, it can save you money each month and help you pay less interest.
What credit score do you need to buy a $30,000 car? ›
What minimum credit score is needed to buy a car? There isn't one specific score that's required to buy a car because lenders have different standards. However, the vast majority of borrowers have scores of 661 or higher.
Car Loan APRs by Credit Score
Excellent (750 - 850): 2.96 percent for new, 3.68 percent for used. Good (700 - 749): 4.03 percent for new, 5.53 percent for used.
What are the disadvantages of a large down payment on a car? ›
What Are the Disadvantages of a Large Down Payment? Providing more money down doesn't guarantee a lower interest rate, and it can cut into your savings.
What is a realistic down payment for a car? ›
The typical down payment on a car ranges from 11% to 20% of the car's value. The credit bureau Experian says a 20% down payment might help shield you from depreciation. Depreciation refers to the ever-shrinking value of your car.
What car can I afford with a 40k salary? ›
on the price of a car. is not to exceed 35% of your gross income. That means if you make $40,000 a year, the cars price should not exceed $14,000. If you make $80,000, the cars price should be below $28,000. And at 150 k salary, that means your max car price should be 50 2500.
Can I use my 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 much should you put down on a 25000 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.
How do you calculate total down payment? ›
The formula looks like this: Down Payment = Purchase Price × Down Payment Percentage. Down Payment = $200,000 × 10%
What is 6% interest on a $30,000 loan? ›
For example, the interest on a $30,000, 36-month loan at 6% is $2,856.
