Should you put money down on a car payment?
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.
Here's the short answer: As much as your wallet can comfortably afford! You see, making a larger down payment is one of the best ways to secure approval for an auto loan – even if you've got less-than-stellar credit. And speaking of wallets – it'll save yours some loot by lowering interest payments in the long run too.
California's ASFA (at California Civil Code Section 2982(a)(6)) specifically requires that all vehicle purchase contract expressly disclose the amount of any deferred down payments that the car buyer has agreed to make.
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.
Key takeaways. Down payments reduce the amount money you must borrow, and thus the interest you pay while repaying your car loan. Experts recommend a down payment of at least 20 percent. Larger down payments may prevent becoming upside-down on your loan.
Generally speaking, you should try to put at least 20% down on a new car or at least 10% down on a used car. This will help you find the best loan terms. It will also reduce the loan amount and the likelihood of owing more than your car is worth.
When you make a really large down payment, say around 50%, you're going to see your auto loan really change for the better. Making a down payment as large as 50%t not only improves your chances for car loan approval, it also: Reduces interest charges. Gives you a much smaller monthly payment.
First things first — you can't spend money you don't have, and you don't want to end up cash-poor. It may be tempting to spend all of the money in your bank account to make the biggest possible down payment — or at least get to that 20% — but that could leave you in a bad position over the long run.
However, you can run into some trouble after you sign if you ignore these payment troubles. Here are some important points to consider when getting into car payments. So, When Is a Car Payment Too High? According to experts, a car payment is too high if the car payment is more than 30% of your total income.
- 'I love this car! ' ...
- 'I've got to have a monthly payment of $350. ' ...
- 'My lease is up next week. ' ...
- 'I want $10,000 for my trade-in, and I won't take a penny less. ' ...
- 'I've been looking all over for this color. '
Why do dealerships want you to put money down?
A down payment may help you to more easily qualify for an auto loan, especially if you have lower credit scores. Without a down payment, the lender has more to lose if you don't repay the loan and they need to repossess and sell the car. Cars can begin losing value as soon as you drive off the lot.
Paying cash may hinder your chances of getting the best deal
"When dealers are negotiating the purchase price, they anticipate making money on the back end, via financing," Bill explains. "So if you tell them up front you're paying cash, the dealer knows he has no opportunity to make money off you from financing.
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. The value of a new car declines about 20% in just the first year.
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. These common recommendations have to do with the car's depreciation and how car loans work.
A good rule of thumb is to spend no more than 10% of your take-home pay on a car loan payment when possible.
Paying extra payments toward the principal in your car loan will shorten the overall length of your loan. While you'll be paying more every month, you'll be paying the loan back for fewer months total. You'll also build equity much faster.
You can often secure better rates with a larger down payment, but you also need to understand how much you can afford. Paying too little for your down payment might cost more over time, while paying too much may drain your savings. A lender will look at your down payment and determine which mortgage is best.
A $20,000 loan at 5% for 60 months (5 years) will cost you a total of $22,645.48, whereas the same loan at 3% will cost you $21,562.43. That's a savings of $1,083.05. That same wise shopper will look not only at the interest rate but also the length of the loan.
Loan Amount | Loan Term (Years) | Estimated Fixed Monthly Payment* |
---|---|---|
$20,000 | 3 | $617.45 |
$20,000 | 5 | $415.07 |
$25,000 | 3 | $771.81 |
$25,000 | 5 | $514.05 |
Car payment statistics
The average monthly car payment for new cars is $726. The average monthly car payment for used cars is $533. 39.20 percent of vehicles financed in the third quarter of 2023 were new vehicles. 60.80 percent of vehicles financed in the third quarter of 2023 were used vehicles.
Can you put a 90% down payment on a car?
Absolutely, you can make a 90% down payment on a used car and finance the rest. It's actually quite a savvy move in many cases. Here's what you need to know: Lower Loan Amount: By paying 90% upfront, you're significantly reducing the amount you need to finance, which means your loan will be much smaller.
Buying a Car with Bad Credit but a Large Down Payment
Don't get us wrong. There are several good reasons to put down a large down payment: smaller loan, lower payments, and a smaller chance that the car will depreciate faster than you can pay it off. But a larger down payment will not offset your credit rating.
Most lenders don't require a minimum down payment. However, the recommended down payment is 10 percent for a used car and 20 percent for a new car.
As a general rule, every $1,000 in the down payment reduces your monthly payment by $15 to $18. You can use our auto loan calculator to see how various down payment amounts will affect your monthly payments.
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.
References
- https://www.thestreet.com/real-estate/down-payment-on-house-14686280
- https://stellarfi.com/answer/what-credit-score-is-needed-to-buy-a-300k-house
- https://www.nerdwallet.com/article/loans/auto-loans/average-monthly-car-payment
- https://www.quora.com/Can-I-make-a-90-down-payment-for-a-used-car-and-finance-the-rest
- https://www.edmunds.com/calculators/affordability.html
- https://thisismortgage.com/if-i-make-55000-a-year-what-mortgage-can-i-afford/
- https://cars.usnews.com/cars-trucks/car-loans-and-leasing/car-payment-calculator
- https://www.mortgagecalculator.org/calcs/car.php
- https://www.marketwatch.com/guides/buy-or-sell-car/when-is-the-best-time-to-buy-cars/
- https://www.creditkarma.com/auto/i/car-down-payment-benefits
- https://www.marketwatch.com/guides/car-loans/car-payoff-calculator/
- https://www.onemainfinancial.com/resources/loan-basics/5000-personal-loan
- https://www.snagajob.com/salary-calculator?pay=25&period=hour
- https://cars.usnews.com/cars-trucks/advice/tips-for-negotiating-at-a-car-dealership
- https://www.bankrate.com/loans/auto-loans/average-monthly-car-payment/
- https://lendedu.com/blog/auto-loan-calculator/
- https://www.forbes.com/advisor/credit-cards/down-payment-on-car-with-credit-card/
- https://www.sofi.com/learn/content/is-40000-a-good-salary/
- https://www.cbsnews.com/news/how-much-income-do-you-need-to-buy-a-250000-home/
- https://www.usbank.com/home-loans/mortgage/first-time-home-buyers/credit-score-for-mortgage.html
- https://www.cbsnews.com/news/should-you-buy-a-new-car-or-fix-cbs-news-explains/
- https://themortgagereports.com/18520/20-percent-downpayment-risk-mortgage-interest-rate
- https://www.capitalone.com/cars/learn/managing-your-money-wisely/how-much-is-a-down-payment-on-a-car-your-guide-to-down-payments/1254
- https://www.caranddriver.com/auto-loans/a42189916/lowest-down-payment-for-car/
- https://www.exclusivemotorcarsmd.com/blog/large-down-payment-pros-cons-used-cars
- https://www.rocketmortgage.com/learn/how-much-down-payment-for-a-house
- https://www.progressive.com/answers/how-many-miles-does-a-car-last/
- https://global.americanexpress.com/card-benefits/detail/auto-purchase-program/delta-reserve
- https://www.autocreditexpress.com/blog/is-1000-a-large-enough-down-payment-on-a-used-car/
- https://www.cusocal.org/how-fast-will-a-car-loan-raise-my-credit-score
- https://www.caranddriver.com/auto-loans/a41867021/car-down-payment-with-credit-card/
- https://www.solaritycu.org/post/articles/does-a-higher-down-payment-make-your-offer-stronger
- https://www.carsdirect.com/auto-loans/can-you-make-a-50-down-payment-on-a-car
- https://www.jdpower.com/cars/shopping-guides/how-much-is-the-monthly-payment-on-a-30000-car-loan
- https://www.californialemonlaw-lawyers.com/auto-fraud-other-car-dealer-tricks/falsifying-down-payment-amounts-in-vehicle-purchase-or-lease-contracts/
- https://www.fool.com/the-ascent/personal-loans/how-much-car-afford/
- https://www.lendingtree.com/auto/what-credit-score-is-needed-to-buy-a-car/
- https://www.moneyunder30.com/negotiate-with-car-salesmen/
- https://www.consumerfinance.gov/ask-cfpb/what-should-i-know-about-leasing-versus-buying-a-car-en-815/
- https://www.scottevansnissanusa.com/finance/car-buying-tips/car-down-payment-with-bad-credit/
- https://www.marketwatch.com/guides/car-loans/pay-off-car-loan-early/
- https://www.nerdwallet.com/article/credit-cards/can-use-credit-card-pay-car-loan
- https://www.marketwatch.com/guides/car-loans/how-much-down-payment-for-a-car/
- https://www.cbsnews.com/news/how-big-of-a-down-payment-should-i-make-on-my-home/
- https://www.bankrate.com/real-estate/how-much-house-can-i-afford-90k-salary/
- https://lanterncredit.com/auto-loans/down-payment-size
- https://www.nerdwallet.com/article/loans/auto-loans/5-things-not-say-buying-car
- https://themortgagereports.com/22502/how-to-buy-a-home-50000-per-year-income
- https://stairsfinancial.com/blog/how-much-house-can-i-afford-on-40k-a-year
- https://www.consumerfinance.gov/owning-a-home/prepare/determine-your-down-payment/
- https://stairsfinancial.com/blog/i-make-25k-a-year-can-i-buy-a-house
- https://www.finn.com/en-US/blog/car-buying/what-is-the-average-down-payment-on-a-car
- https://www.investopedia.com/best-auto-loan-rates-4846394
- https://www.cusocal.org/Blog/down-payment-on-a-car
- https://www.progressive.com/lifelanes/on-the-road/when-to-replace-car/
- https://www.nerdwallet.com/calculator/auto-loan-calculator
- https://www.bankrate.com/mortgages/what-is-down-payment/
- https://www.sofi.com/learn/content/i-make-36k-a-year-how-much-house-can-i-afford/
- https://www.navyfederal.org/makingcents/auto/factors-affecting-car-payment.html
- https://www.carmax.com/faq/buying-a-car/what-kind-of-documentation-do-i-need-to-buy-a-car-at-carmax
- https://www.bankrate.com/loans/auto-loans/car-loan-down-payment-benefits/
- https://www.nerdwallet.com/article/credit-cards/buy-car-credit-card
- https://www.bankrate.com/loans/auto-loans/average-car-loan-down-payment/
- https://www.chase.com/personal/auto/education/buying/can-you-buy-a-car-with-a-credit-card
- https://www.chase.com/personal/auto/education/financing/car-loan-with-no-down-payment
- https://www.nerdwallet.com/article/loans/auto-loans/does-paying-the-principal-lower-a-monthly-car-payment
- https://themortgagereports.com/75530/down-payment-300000-house
- https://www.cbsnews.com/news/how-much-house-can-i-afford-on-a-50000-salary/
- https://www.calculator.net/down-payment-calculator.html
- https://www.cainmortgageteam.com/20-down-payment-on-a-300-000-house/
- https://www.sofi.com/learn/content/i-make-45k-a-year-how-much-house-can-i-afford/
- https://www.quora.com/How-much-house-can-I-afford-if-I-make-30-000-a-year
- https://www.autotrader.com/car-shopping/whats-right-down-payment-car-loan-or-lease-212702
- https://www.lendingtree.com/auto/reviews/american-express/
- https://www.realtor.com/advice/finance/how-much-is-enough-for-a-down-payment/
- https://themortgagereports.com/70827/70k-per-year-salary-how-much-house-can-i-afford
- https://www.nerdwallet.com/article/loans/auto-loans/how-much-down-payment-make-buying-car
- https://www.bankrate.com/loans/auto-loans/down-payment-calculator/
- https://www.caranddriver.com/auto-loans/a41868484/does-paying-principal-lower-monthly-car-payment/
- https://pricemortgage.com/large-down-payment/
- https://www.bankrate.com/finance/credit-cards/buy-car-with-credit-card/
- https://www.cnn.com/2008/LIVING/wayoflife/06/27/aa.car.dealers/
- https://www.consumerfinance.gov/ask-cfpb/how-does-a-down-payment-affect-my-auto-loan-en-773/
- https://www.lendingtree.com/auto/calculators/payment/
- https://www.gobankingrates.com/investing/real-estate/income-needed-for-300k-mortgage/
- https://www.carmax.com/buying-online
- https://www.progressive.com/answers/car-down-payment/
- https://time.com/personal-finance/article/can-you-pay-a-car-loan-with-a-credit-card/
- https://www.capitalone.com/cars/learn/getting-a-good-deal/what-are-the-benefits-of-putting-a-down-payment-on-a-car/1013
- https://www.rockhillnissan.com/when-is-a-car-payment-too-high/
- https://thehub.santanderbank.com/im-financing-a-car-should-i-make-a-down-payment-or-pay-off-debt/
- https://www.capitalone.com/cars/calculator
- https://www.carmax.com/car-financing
- https://www.bankrate.com/loans/auto-loans/how-to-pay-off-a-car-loan-faster/
- https://www.lendingtree.com/auto/how-much-money-should-you-put-down-on-a-car/
- https://www.amfam.com/resources/articles/at-home/closing-costs-vs-down-payments
- https://www.moneylion.com/learn/can-you-buy-a-car-with-a-credit-card/
- https://www.marketwatch.com/guides/buy-or-sell-car/carmax-review/
- https://www.linkedin.com/pulse/working-out-down-payment-500-enough-your-next-auto-loan-hendricks
- https://www.lendingtree.com/auto/step-5-negotiating-car-prices/