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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 tools and financial calculators that provide authentic and impartial content by enabling you to conduct research and compare information at no cost – so that you can make financial decisions with confidence. Bankrate has partnerships with issuers, including but not limited 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 compensate us. This compensation could affect how and where products appear on the site, such as for instance, the sequence in which they appear within the listing categories and other categories, unless prohibited by law for our loan products, such as mortgages and home equity, and other home loan products. This compensation, however, does have no impact on the information we provide, or the reviews you see on this site. We do not contain the universe 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 work began over 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 Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to manage their finances with concise, well-researched and reliable information that breaks down otherwise complex topics into manageable bites. The Bankrate guarantee

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There are money-related questions. Bankrate can help. Our experts have been helping you manage your money for more than four years. We are constantly striving to give our customers the right advice and tools required to be successful throughout their financial journey. Bankrate adheres to strict standards , so you can trust that our information is trustworthy and accurate. Our award-winning editors and reporters produce honest and reliable content to help you make the right financial choices. Our content produced by our editorial staff is objective, factual and uninfluenced from our advertising. We’re honest about how we are in a position to provide quality content, competitive rates, and valuable tools to our customers by describing how we earn money. is an independent, advertising-supported publisher and comparison service. We receive compensation for the placement of sponsored products andservices or when you click on specific links that are posted on our website. So, this compensation can impact how, where and in what order products appear within listing categories, with the exception of those it is prohibited by law for our mortgage, home equity and other home loan products. Other factors, like our own website rules and whether the product is offered in your area or at your personal credit score could also affect the manner in which products appear on this site. While we strive to provide the most diverse selection of products, Bankrate does not include details about each credit or financial product or service. A down payment is comprised of the cash you have on hand, the value of the trade-in, and any rebates that you qualify for. All of these contribute to decrease the amount you need to take out. They demonstrate to lenders that you’re serious, which in turn could help you secure an interest rate that is better. What is a good down payment?

Experts recommend a down payment that is at minimum 20 percent to purchase the purchase of a brand new vehicle, or 10 percent if you’re buying used. It’s not a bad idea to pay more down to save money on interest, but only if you’re able to.

Five benefits to making a payment Down payments are typically required by lenders. They generally require at minimum 10 percent down. But even if it is not required, it’s nevertheless worthwhile. After all, it can save you money each month, and also help you pay less interest. 1. A lower monthly installment Since putting money down reduces the amount you’ll need to pay, you are likely to pay less every month, which results in a lower monthly payment. It’s simple to understand the mathematical. Utilize an estimate to calculate monthly payments. If you borrow $30,000 at 5 percent for 48 months, you’ll pay each month $691. If you make a 20% down payment that’s $6,000 you’ll lower the amount you need to borrow to just $24,000. This will result in an average monthly payment of $553. 2. More equity starting out Equity is the difference between what you own for a vehicle and its possible sale price. Large down payments boost your equity since you won’t need to finance the same amount through a lender. Cars are an investment . As values of the car decreases, you’re more likely to go upside down on your loan — if you have more debt than the value of your car. A greater down payment guards against depreciation as it acts as buffer. Because you own a larger portion of your car from the start with a greater down payment, you’re less likely to end up in a loan which is more expensive than what you can sell your car for. 3. A lower interest rate The most significant advantage of a substantial cash downpayment is it lowers the amount you need to be able to. If you are able to borrow less you will have to pay less in interest. The more money you have in your pockets and less of the lender’s -is always a positive thing. Like the example of a monthly payment, a 20 percent down payment could make a significant difference in the price for an automobile loan. If you take out $30,000 at a five percent interest rate over two years, then you’ll pay $3,162 in interest. If you make a down payment of $6,000 that’s only $2,530 over the course of your loan. 4. Possibly reduced rates Some lending institutions may offer you the opportunity to get a loan if you’ve made a significant down payment. Since a down payment indicates that you are able to manage money, you’ll be less of a risk to the lender. There are a number of aspects that impact the rate of interest you pay, such as your credit score and income, so this is far from guaranteed. But a significant deposit is something lenders look at and could aid in covering areas that you may not be as confident in. 5. A higher acceptance rate if you have excellent or great credit, not having to put money down might not be a deal breaker. A lower credit score can mean that you’ll get a higher interest rate, or even being turned down for an loan. But if you’re able to pay a down payment, you could strengthen your approval odds or persuade the lender to provide you with more competitive financing terms. The experts recommend that you put down at least 20 percent The most popular recommendation is to put down at least 20 percent on a vehicle. More, of course, is better. The less you have to finance the less you have to finance, the better. However, it’s a lot of money. In 2022, the median new car price was just a little over 48,000 dollars in July, according to Kelley Blue Book (KBB). A 20 percent down payment on that is equal to $9,600. Even used cars are averaged to — that comes to $5,600 for a 20 percent deposit. These are just averages, and you will certainly have the ability to find less expensive alternatives. Be aware that prices are likely to increase due to global shortages on important parts such as semiconductors. It is not a good idea to deplete your savings for a downpayment. Benefit from discounts if you’re looking to purchase a new car or used, and look around for a . Selling or trading it in at a dealership can go a long way towards getting to that coveted 20 percent threshold. If you’re unable to pay for 20 percent, it’s okay to pay as little as 10 percent. Certain dealers may only require a $1,000 down payment. However, you should ensure that you put down the most you can in order to keep from taking out a huge loan that can leave you in a position of being upside down. Do not put down any money at all. should always have an amount of money to pay down when purchasing a car. Some experts say it might 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 offer zero-down financing because they are able to earn the most interest. After all, it is an alternative to a huge down cost. With low interest rates, you’ll wind having to borrow more. That means more interest paid and a greater likelihood of being . Zero-down offers may come with a to cover the higher monthly costs. This is the biggest trap. The longer the loan duration will be, the more money you’ll have to must pay the lender. The next step is the more you are able to pay in advance, the better off you will be. A down payment of 20 percent is the most common amount however, you are able to put down more depending on your budget. Just avoid paying more than 10% or $1000 particularly when you’ve got it — so you can still enjoy a favorable interest rate. Make sure you compare automobile loans and look for financing before you begin your car shopping. In this way, you’ll be aware of the amount you can afford and also how much you will need to make a big down payment. Find out more


Allison Martin’s writing began more than 10 years ago, as a digital content strategist, and she’s since been published in a variety of top financial publications, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and 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 gain the confidence to manage their finances by providing precise, well-studied details that cut complex subjects into bite-sized pieces.

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