Benefits of making a down payment on a car Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make smarter financial decisions by providing you with interactive tools and financial calculators as well as publishing authentic and impartial content by allowing you to conduct research and compare information at no cost to help you make informed financial decisions. Bankrate has agreements with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this website are provided by companies that pay us. This compensation may impact how and when products are featured on the site, such as for instance, the order in which they appear in the listing categories and other categories, unless prohibited by law. Our mortgage, home equity and other home lending products. However, this compensation will not influence the information we provide, or the reviews you read on this site. We do not cover the vast array of companies or financial offerings that could be available to you. DjelicS/Getty Images

4 minutes read. Published September 21 2022

Written by Allison Martin Allison Martin Written by Allison Martin’s career began more than 10 years prior to that as a digital content strategist, and she’s since been featured in a variety of top financial media outlets, such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Editor: Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are committed to helping readers gain the confidence to control their finances through providing clear, well-researched information that breaks down complicated topics into bite-sized pieces. The Bankrate promise

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Experts recommend a downpayment of at least 20 percent when buying a new car and 10 percent if you’re buying a used. It doesn’t hurt to pay more down to get the most savings from interest, but only if you can afford to.

5 advantages of making a down payment Down down payments are often required by lenders. They typically require at least 10% down. But even if it is not mandatory, it’s nevertheless worth it. It will save you money each month and allow you to pay lower interest. 1. Lower monthly payments As putting money down decreases the amount you’ll need to take out, you will be able to pay less every month, which results in a lower monthly payment. It’s easy to see the mathematics. You can use an app to estimate monthly installments. If you take out $30,000 with 5 percent interest over 48 months, you’ll have to pay an average of $691 per month. If you make a 20% down payment of $6,000, you’ll reduce the amount you’ll need to borrow to just $24,000. This will result in an average monthly payment of $553. 2. A higher equity level when you first start out. Equity is the difference between the amount you have for a car and the potential price at sale. A large down payment can boost your equity since you won’t need to finance the same amount via a lender. Cars are an asset . As the value of your vehicle diminishes, you’re likely to be upside down on your loan which means you are owed more than what your car is worth. A greater down payment guards against depreciation as it acts as buffer. Because you own a larger portion of your car starting with a greater down payment, you are less likely to end up in a loan that costs more than what you could sell the car. 3. A lower interest rate The most significant advantage of a substantial down payment is that it reduces the amount you need to be able to. When you borrow less, you pay less interest. More money in your pocket — and less in the lender’s — is always a good thing. Just like with the example of the monthly payment that a 20% down payment can make a big difference in the cost of an auto loan. If you borrow that same $30,000 at a five percent interest rate over the course of 48 months, you’ll pay $3,162 in interest. With a $6,000 down payment, you’ll only pay $2,530 over the duration of your loan. 4. Possibly reduced rates Some lending institutions might be willing to offer an offer if you’ve got a significant down payment. Because a downpayment shows you know how to handle money, you’ll be less risky to the lender. There are a number of variables that affect the rate of interest you pay, such as the credit score and your income, and it’s far from guaranteed. Still, a large amount of downpayment is one that lenders consider and can help make up for areas where you aren’t as confident in. 5. Better acceptance rate If you have excellent or good credit, not putting any money down might not be a major issue. A lower credit score means you’ll be charged a higher rate or, worse, be turned down for an loan. However, if you’re able pay a down payment, you can increase your approval odds or persuade the lender to provide you with more competitive financing terms. Experts recommend putting down at least 20 percent The most popular recommendation is to put down 20 percent or more on the vehicle. Of course, more is better. The lower the amount you must finance the less you have to finance, the better. However, it’s an enormous amount of money. In 2022 the average new car price was just a little over 48,000 dollars in July, as per Kelley Blue Book (KBB). A 20 percent down payment of that amount is $9,600. Even used cars averaged out with — and that amounts up to $5,600 for a percent deposit. These are just averages, and you will certainly be able to find less expensive alternatives. Just know that prices continue to increase due to shortages in the world of vital parts like semiconductors. You certainly don’t want to drain your savings to pay for a down payment. Make use of rebates when you are looking to purchase a new car, and shop around for a . Selling it or trading it at a dealership could go a long way to getting you at that sought-after 20 percent mark. If you’re unable to pay for 20 percent, you’re allowed to make a deposit as low at 10 percent. Some dealers may only require a $1,000 down payment. Whatever the case, make sure to deposit as much as you can to avoid taking out a large loan that can leave you in a position of being upside down. Do not put down any money at all. must always have a down payment in the event of buying cars. Certain experts suggest it may not be necessary in the event that you’re able to qualify some kind of loan, but the majority of buyers will not be able to qualify for that. Dealers will offer financing with no down payment because they stand to make the highest interest. After all, it is an alternative to a huge down payment. Even at low rates, you’ll end up needing to finance more. That means more interest paid and a greater chance of being . Zero-down offers may be accompanied by a plan to cover the higher monthly costs. This is the most dangerous trap. The longer the loan term, the more you must pay the lender. The next steps: The more you are able to pay in advance, the better off you will be. A down payment of 20 percent is the go-to amount however you can put down more if you can afford it. Be sure to not pay under 10 percent, or $1000 particularly if you have — so you can still get a good interest rate. It is important to research auto loans and find financing before you start car shopping. This way, you will know precisely how much you are able to afford and how much you’ll need for a large down payment. Learn more


Allison Martin’s writing began more than 10 years ago as a digital content strategist and she’s since been featured in several leading financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers feel confident to take control of their finances by providing precise, well-studied facts that break down complex topics into manageable bites.

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