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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 offering you interactive financial calculators and tools as well as publishing original and objective content, through allowing you to conduct your own research and compare data for free – so that you can make financial decisions with confidence. Bankrate has partnerships with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn money The products that are advertised on this website are provided by companies that pay us. This compensation can affect the way and when products are featured on this site, including, for example, the order in which they appear within the listing categories in the event that they are not permitted by law. Our loans, mortgages, and other products for home loans. This compensation, however, does have no impact on the information we provide, or the reviews that you see on this site. We do not contain the universe of companies or financial deals that might be available 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 ago as a digital content strategist. She’s been published in several leading financial publications, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to take control of their finances with clear, well-researched information that breaks down complicated topics into bite-sized pieces. The Bankrate guarantee

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Experts recommend a downpayment in the range of 20 to 20 percent when buying the purchase of a brand new vehicle and 10 percent if you’re buying used. It doesn’t hurt to make a bigger deposit to maximize interest savings However, only if you have the money to.

Five benefits of making a down payment Down payments are typically a necessity — lenders generally require at minimum 10 percent down. However, even if it’s not mandatory, it’s nonetheless worthwhile. In the end, it will save you money each month and allow you to pay lower interest. 1. Lower monthly payment Because putting money down lowers the total amount you have to pay, you are likely to pay less every month, which translates into a lower monthly payment. It’s simple to understand the mathematics. Utilize an estimate to calculate monthly payments. If you borrow $30,000 at 5 percent for up to 48 month, you’ll be paying each month $691. With a 20 percent down amount that’s $6,000 you’ll lower the amount you have to borrow to only $24,000. That’s an average monthly payment of $553. 2. The equity you earn when you start is the difference between what you own for a vehicle and its possible sale price. A large down payment can improve your equity as you don’t have to finance as much through an lender. Cars are a . When values of the vehicle decreases, you’re more likely to end up upside down on your loan which means you are owed more than what the value of your car. A higher down payment will protect against depreciation because it acts as buffer. Because you own a larger part of your vehicle at the beginning by making a larger down payment, you’re less likely to be paying for a loan which is more expensive than what you could sell the car. 3. Less interest paid The biggest benefit of having a larger down payment is that it lowers the amount you must borrow. If you are able to borrow less you are paying less. A greater amount of money in your pocket and less of the lender’s -is always a positive thing. Like the monthly payment example, a 20 percent 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 48 months, you’ll pay 3162 dollars in interest. With a $6,000 down payment, you’ll only pay $2,530 over the life of the loan. 4. Potentially lower rates Some lenders might offer you an offer if you’ve got an impressive down payment. Since a down payment indicates that you are able to manage money and you’ll be less risky to the lender. There are many variables that affect your interest rate, like credit score and income, and it’s far from guaranteed. However, a substantial deposit is something lenders look at and could assist in overcoming areas that you may not be as confident in. 5. Better acceptance rate If you have excellent or great credit, not putting any money down might not be a deal breaker. However, a lower credit score means you’ll get a higher interest rate, or even you’ll be denied a loan. However, if you’re able pay a down payment, you could strengthen your approval odds or get the lender to offer you better terms on financing. Experts recommend putting down at least 20 percent The most common advice is to put down 20 percent or more when purchasing the vehicle. Of course, more is preferred. The less you have to finance, the better. However, it’s quite a sum of money. In 2022, the median new car price topped out slightly over $48,000 in June, according to Kelley Blue Book (KBB). A 20 percent down payment on that is equal to $9,600. Even used vehicles averaged at — which amounts to $5,600 with a 20 per cent down. These are just averages, and you’ll be able to find less expensive options. Just know that prices continue to go up because of global shortages on important components like semiconductors. It is not a good idea to drain your savings to pay for a downpayment. Make use of rebates when you are looking to purchase a brand new vehicle and then search for . Selling it or trading it in at a dealership will go a long ways to getting you at that desired 20 percent mark. If you absolutely can’t afford 20 percent, you’re allowed to put down as little at 10 percent. Some dealers that work with could only require a $1000 down amount. Whatever the case, ensure that you put down as much as you can to keep from taking out a huge loan which could put you with a huge debt. Don’t put any money down. should always have a down payment in the event of buying cars. Some experts believe it may not be needed if you’re able to score some kind of loan, but the majority of buyers aren’t eligible for this. Dealers will offer financing with no down payment because they are able to earn the most in interest. It is, after all, the opposite of a large down payment. With low interest rates, you’ll end up needing to finance more. That means more interest paid and a greater likelihood of becoming . Zero-down offers may be accompanied by a plan to offset higher monthly payments. This is the biggest drawback. The longer the loan period will be, the more money you’ll have to must pay the lender. The next step is the more you pay upfront to the lender, the better off you’ll be. A down payment of 20 percent is the standard however you can make a bigger deposit depending on your budget. Make sure you don’t pay more than 10% or $1000 and especially if you have an existing credit card, so that you can still secure a competitive interest rate. It is important to research auto loans and look for financing before you begin your car shopping. In this way, you’ll know exactly how much you are able to afford and how much you’ll need to pay to pay for a substantial down amount. Learn more


Written by Allison Martin’s work began more than 10 years ago as a digital content strategist, and she’s since been featured in a variety of top financial publications such as 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 from late 2021. They are dedicated to helping their readers to manage their finances by providing concise, well-researched and well-written facts that break down otherwise complex topics into manageable bites.

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