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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 choices by offering you interactive tools and financial calculators as well as publishing original and objective content, by allowing you to conduct your own research and compare data for free and help you make sound financial decisions. Bankrate has agreements with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that are advertised on this site are from companies that pay us. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear within the listing categories, except where prohibited by law for our mortgage, home equity, and other products for home loans. But this compensation does have no impact on the information we provide, or the reviews you see on this site. We do not include the vast array of companies or financial deals that might be accessible 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. She’s been featured in a variety of top financial outlets, 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 since late 2021. They are passionate about helping readers gain confidence to control their finances through providing precise, well-researched, and well-studied information that breaks down complicated topics into bite-sized pieces. The Bankrate promises

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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 10 percent for a car you’re buying a used. It doesn’t hurt to put down more to get the most savings from interest, but only if you can afford to.

5 benefits of making a down down payments are often necessary — lenders generally require at minimum 10 percent down. But even if it is not mandatory, it’s still worth it. In the end, it will help you save money every month and allow you to pay lower interest. 1. A lower monthly installment Because putting money down lowers the overall amount you need to take out, you will be able to pay less every month, which results in you pay less monthly. It’s simple to understand the mathematics. You can use an app to estimate monthly payments. If you borrow $30,000 at 5 percent interest for the duration of 48 months, then you’ll be paying each month $691. If you make a 20% down amount of $6,000, you’ll lower the amount you’ll need to borrow to only $24,000. This will result in a monthly payment of $553. 2. More equity starting out Equity is the amount of equity you own for a vehicle and its possible sale price. Large down payments increase your equity because you don’t have to finance more through a lender. Cars are an asset . When values of the vehicle declines, you’re more likely to end up upside down on your loan — when you are owed more than what your car is worth. A greater down payment guards against depreciation because the equity serves as buffer. Because you own a larger part of your vehicle starting by making a larger down payment, you are less likely to end up paying for an loan that costs more than what you can sell your vehicle for. 3. Less interest paid The biggest benefit of a large down payment is that it decreases the amount you need to borrow. If you are able to borrow less, you pay less interest. A greater amount of money in your pocket and less of the lender’s pockets — is always a good thing. Like the example of the monthly payment 20 percent down payment can make a huge difference in the price of an auto loan. If you take out $30,000 at a five percent interest rate over two years, then you’ll have to pay 3162 dollars in interest. With a $6,000 downpayment, you’ll only pay $2,530 over the course that the loan. 4. Possibly better rates Certain lenders could offer you the opportunity to get a loan if you’ve made an impressive down payment. Since a down payment indicates you know how to handle money it will make you less of a risk for the lender. There are a number of factors that influence your interest rate, like your credit score and income, and it’s far from guaranteed. Still, a large amount of downpayment is one lenders look at and could help make up for areas that you may not be as confident in. 5. Higher acceptance rate If you have excellent or good credit, not having to put money down might not be a major issue. A lower credit score can mean that you’ll get a higher interest rate, or even being turned down for the loan. But if you’re able to make a down payment, you may increase your odds of getting approved or persuade the lender to provide you with more competitive financing terms. Experts suggest putting down at least 20 percent. The most popular recommendation is to pay at least 20 percent in a vehicle. More, of course, is better. The lower the amount you must finance, the better. But it is an enormous amount of money. In 2022 the average new car cost topped slightly over $48,000 in June, according to Kelley Blue Book (KBB). A down payment of 20 percent on that is equal to $9,600. Even used cars are averaged at — which comes to $5,600 for a 20 percent deposit. These are averages, so you’ll be able to find less expensive options. Be aware that prices are likely to increase due to shortages in the world of vital components like semiconductors. It is not a good idea to drain your savings to pay for a downpayment. Take advantage of discounts if you’re looking to buy new, and shop around for a . Selling or trading it into a dealer will go a long ways in getting you to the desired 20 percent mark. If you’re unable to pay for 20 percent, it’s okay to make a deposit as low 10. Some dealers might only require a $1,000 down amount. However, you should try to put down as much as you can to avoid taking out a large loan that could leave you upside down. Avoid putting nothing down You should always have an amount of money to pay down when purchasing a car. Some experts say it might not be required in the event that you’re able to qualify however the majority of people won’t qualify for that. Dealers offer zero-down financing because they can earn the highest interest. After all, it is the opposite of a large down payment. Even at low rates, you’ll end in needing to finance more. This means you will pay more interest and a greater chance of becoming . A zero-down deal could also come with a to offset higher monthly payments. This is the biggest trap. The longer the loan term is, the more you have to pay to the lender. Next steps The more you pay upfront, the better off you will be. A 20% down payment is the standard however you can make a bigger deposit if you can afford it. Make sure you don’t pay under 10 percent, or $1000 and especially when you’ve got it the funds to still get a good interest rate. It is important to research auto loans and locate financing prior to you begin shopping for a car. This way, you will know precisely how much you can afford and how much you will need for a large down payment. Find out more

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Written by Allison Martin’s work started over 10 years ago when she was 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 Credit.com. Written 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 feel confident to take control of their finances through providing clear, well-researched facts that break down complex topics into manageable bites.

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