You’re planning to purchase a new car soon and aren’t sure if you save up for a down payment. Some lenders could approve you for 100 percent financing or a car loan with no down payment if you have good or excellent credit. But this option may not be the most ideal. In this guide, you’ll learn why it’s best to make a down payment, the amount you should put down on a new or used car, the benefits of putting money down and how to save up for a down payment.
How Much Down Payment Should You Make On A Car?
It depends on the type of car you’re planning to purchase.
Down Payment On A New Car
Experts recommend that you make a down payment of at least 20 percent if you buy a new car. So, if the purchase price is $35,000, you should put down no less than $7,000. This amount could be out of reach with rising car prices, and you may have to put down less.
Down Payment On A Used Car
The suggested down payment amount drops to 10 percent for used vehicles. So, using the above example, you’d only need to put $3,500 on the table for a $35,000 car. However, you likely won’t spend that much on a used car unless it’s only a few years old and in excellent condition.
Benefits Of a Larger Down Payment
There are several advantages to making a larger down payment.
Lower Loan-To-Value Ratio
As the name implies, the loan-to-value ratio is the loan amount compared to what the vehicle is worth. Lenders have restrictions on the maximum LTV they’ll accept, and putting more money down could make it easier to get approved.
Improve Approval Chance With Lower Credit
Ideally, your credit score should be at or above 670 to qualify for a good deal on auto loan financing. You’ll likely be offered a lower interest rate if it falls below this threshold, required to make a 10 percent down payment or denied altogether for financing.
Shorter Loan Term
When you put little to no money down on a car loan, an extended loan term could make the monthly payment more affordable. But if you put money down, you can opt for a shorter loan term and pay the car off sooner.
Lower Monthly Payments
A higher down payment means a smaller loan amount. In turn, you’ll get lower, more affordable monthly payments.
Less Interest Paid
The cost of borrowing depends on your creditworthiness, the loan term and the down payment. You can’t control the interest rate the lender gives you, but you can put more down to lower the loan amount that you’ll pay interest on.
Avoid Being Upside Down On Your Car Loan
If you’re upside down on your car loan, you owe more than the car is worth. Unfortunately, this could easily happen over time due to depreciation, especially if you don’t put money down and opt for an extended loan term to lower the monthly payment.
How to Save or Increase Your Down Payment
Before you begin stashing cash away for a down payment, decide on a savings goal. Next, determine how much time you want to work towards your goal. To illustrate, if you’re going to save up to $6,000 over six months, you’ll need to save $500 per month. The final step is to make room in your spending plan to meet your goal on time.
An effective way to curb costs and meet your goal is by refinancing your existing car loan to get a lower monthly payment.
FAQs About Down Payment for Car Loans
Here are some frequently asked questions (FAQs) about down payments on auto loans.
Is Putting Zero Down On A Car Good?
There are several benefits to making a sizable down payment. However, it’s not worth emptying your savings account to capitalize on these perks and could have severe consequences for your financial health should a financial emergency arise. Still, you should try to put something down, even if it’s not the recommended 20 percent for new cars (or 10 percent for used vehicles).
How Does Gap Insurance Work?
Guaranteed asset protection (GAP) insurance protects you if your vehicle is stolen or totaled in an accident. In addition, it pays off your auto loan if you owe more than the car is worth, so you won’t have to come out of pocket.
FAQs
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.
What's a good down payment 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 $2000 a good 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.
Is $4000 a good down payment for a 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.
Is $10,000 a good down payment on a car? ›
With the 20 percent rule, drivers need almost $10,000 on hand. Even used cars averaged $25,151 — which comes to $5,030 for a 20 percent down payment. Many buyers successfully finance a car with less than a 20 percent down payment.
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.
How much would a car payment be for a $30000 car? ›
A $30,000 auto loan balance with an average interest rate of 5.0% paid over a 6 year term will have a monthly payment of $483.
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 is a reasonable car payment? ›
Many financial experts recommend spending no more than about 10% to 15% of your monthly take-home pay on an auto loan payment. Daniel Robinson is a writer based in Greenville, N.C. with expertise in auto insurance, loans, warranty options and more.
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.
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 good APR for a car? ›
What is a good APR for a car loan with my credit score and desired vehicle? If you have excellent credit (750 or higher), the average auto loan rates are 5.07% for a new car and 5.32% for a used car. If you have good credit (700-749), the average auto loan rates are 6.02% for a new car and 6.27% for a used car.
Is it smart to put money down on a car? ›
Making a down payment on a car can save you money and increase your chances of getting a loan — and better loan terms — especially if you have less-than-perfect credit. If you don't need to buy a car right away, consider saving for a down payment before you start shopping around for a car loan.
Is 2k 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.
How much is a 10k car loan a month? ›
Example 1: A $10,000 loan with a 5-year term at 13% Annual Percentage Rate (APR) would be repayable in 60 monthly installments of $228 each. The actual payment amount and year-end balance will vary based on the APR, loan amount, and term selected.
Is it better to put money down on a car or pay extra principal? ›
YOU'LL GET A BETTER DEAL ON A CAR LOAN
If you make a down payment, you'll still finance or borrow the remainder of the cost. But the payment reduces your loan-to-value ratio—the amount of your loan divided by the cash value of the vehicle. A lower loan-to-value ratio often leads to better loan deals.
How much money should you have to buy a $30000 car? ›
However, this varies by lender, and the larger the down payment you can make, the better. As a general rule of thumb, it's recommended that you put down at least 20% on a new vehicle, and at least 10% on a used car.
What is the average payment for a 30k loan? ›
The monthly payment on a $30,000 loan ranges from $410 to $3,014, depending on the APR and how long the loan lasts. For example, if you take out a $30,000 loan for one year with an APR of 36%, your monthly payment will be $3,014.
What credit score do I need for a 30k loan? ›
For a $30,000 loan, you'll typically need a credit score above 600 just to qualify or above 700 to get a competitive rate.
How much should you put down on a 32k 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.
