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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 goal is to help you make better financial decisions by offering you interactive financial calculators and tools as well as publishing quality and accurate content by enabling you to conduct research and compare information for free and help you make financial decisions with confidence. Bankrate has agreements with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this site are from companies that compensate us. This compensation may impact how and where products appear on this website, for example, for example, the order in which they may appear within the listing categories, except where prohibited by law for our loans, mortgages, and other home lending products. However, this compensation will have no impact on the content we publish or the reviews that appear on this website. We do not cover the universe of companies or financial deals that might be accessible to you. DjelicS/Getty Images

4 min read Published September 21 2022

Written by Allison Martin Written by Allison Martin’s career began more than 10 years prior to that as a digital content strategist. She’s been featured in a variety of top financial publications, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Editor: Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain the confidence to manage their finances by providing concise, well-researched and reliable facts that break down complicated subjects into digestible pieces. The Bankrate guarantee

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Experts recommend a down payment in the range of 20 to 20 percent to purchase an automobile that is brand new 10 percent for a car you’re purchasing a used. It’s not bad to make a bigger deposit to save money on interest, but only if you have the money to.

5 benefits of making a down payment Down down payments are often a necessity — lenders frequently want at least 10% down. Even if it’s not required, it’s nonetheless worth it. It will save you money each month, and also help you pay lower interest. 1. A lower monthly installment Since putting money down reduces the total amount you have to take out, you will be able to pay less every month, which translates into you pay less monthly. It’s easy to comprehend the mathematics. Use an to estimate monthly installments. If you borrow $30,000 at 5 percent interest over 48 months, you’ll be paying an average of $691 per month. With a 20 percent down amount of $6,000, you’ll cut the amount you need to borrow to only $24,000. This will result in the monthly installment of $553. 2. A higher equity level when you first start out. Equity is the difference between the amount you have for a vehicle and its possible sale price. Large down payments boost your equity since you won’t require financing more by the lender. Cars are an asset . As you’re vehicle decreases, you’re more likely to go upside down with your loan — when you owe more than the value of your vehicle. A greater down payment guards against depreciation as the equity serves as buffer. Because you own a larger part of your car at the beginning by making a larger down payment, you’re less likely to be in the loan that costs more than what you can sell your vehicle for. 3. A lower interest rate The most significant benefit of having a larger cash downpayment is it reduces the amount you must take out. When you borrow less you will have to pay less in interest. The more money you have in your pockets and less in the lender’s pockets -it’s always a good thing. Just like with the example of the monthly payment 20 percent down payment can make a huge difference in the price of an auto loan. If you borrow that same $30,000 at a five percent interest rate over two years, then you’ll be paying $3,162 in interest. With a $6,000 down payment that’s only $2,530 over the course of your loan. 4. Potentially lower rates Some lenders might be willing to offer an offer if you’ve got an impressive down payment. Since a down payment indicates you have the ability to manage money, you’ll be less risky to the lender. There are a number of aspects that impact your interest rate, like credit score and income, so it’s far from guaranteed. Still, a large down payment is something lenders consider and can help make up for areas you might not be as strong in. 5. A higher acceptance rate if you have excellent or great credit, not putting money down might not be a deal breaker. However, a lower credit score can mean that you’ll get a higher interest rate, or even you’ll be denied a loan. If you’re able to make a down payment, you can increase your chances of approval or persuade the lender to give you better financing terms. Experts recommend putting down at least 20 percent The most commonly used advice is to put down at least 20 percent when purchasing an automobile. Of course, more is preferable. The less you need to finance the more you can afford. However, it’s quite a sum of money. In 2022, the median new car cost topped just a little 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 equates to $5,600 with a 20 percent deposit. These are averages, therefore you will certainly be able to find less expensive options. Be aware that prices are likely to go up because of global shortages on important parts such as semiconductors. You don’t want to use up your savings to pay for a down payment. Take advantage of rebates when you are looking to purchase a new car or used, and look around for a . Selling it or trading it into a dealer will go a long ways towards getting to that sought-after 20 percent mark. If you’re unable to pay for 20 percent, it’s okay to pay as little 10. Certain dealers might only require a $1,000 down amount. Whatever the case, make sure to deposit the most you can in order to avoid taking out a large loan that could leave you in a position of being upside down. Do not put down any money at all. must always have a down payment when buying cars. Certain experts suggest it may not be needed if you’re able to score 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 can earn the most interest. After all, it is an alternative to a huge down cost. Even at low rates, you’ll wind having to borrow more. That’s more interest to pay and a higher chance of becoming . Zero-down offers may include a way to cover the higher monthly costs. This is the most dangerous trap. The longer your loan term is, the more you have to pay to the lender. The next steps: The more you pay upfront, the better off you will be. A 20% down payment is the go-to amount, but you can always put down more when you are able to afford it. Make sure you don’t pay more than 10% or $1,000 — especially when you’ve got it the funds to still get a good interest rate. Take the time to compare automobile loans and find financing before you start car shopping. In this way, you’ll know precisely how much you can afford and also how much you’ll need for a large down cost. Learn more

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Allison Martin’s work started over 10 years ago as an online 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. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to manage their finances through providing precise, well-studied information that breaks down complex topics into manageable bites.

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