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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 aim is to assist you make better financial choices by providing you with interactive tools and financial calculators as well as publishing authentic and impartial content by allowing users to conduct research and compare information at no cost to help you make informed financial decisions. 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 deals that are displayed on this site are from companies that pay us. This compensation could affect how and where products appear on this website, for example the sequence in which they be listed within the categories of listing, except where prohibited by law for our mortgage, home equity and other products for home loans. This compensation, however, does affect the content we publish or the reviews appear on this website. We do not include the entire universe of businesses or financial offerings that could be open 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 ago as a digital media strategist. She’s published in numerous prestigious financial publications, including 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 since late 2021. They are committed to helping readers gain the confidence to control their finances by providing concise, well-researched and reliable facts that break down complex topics into manageable bites. The Bankrate promise

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There are money-related questions. Bankrate has the answers. Our experts have been helping you manage your money for over four years. We are constantly striving to give our customers the right guidance and the tools necessary to succeed throughout life’s financial journey. Bankrate adheres to strict standards policy, which means you can be confident that our content is truthful and accurate. Our award-winning editors and journalists create honest and accurate information to assist you in making the best financial decisions. Our content produced by our editorial team is objective, factual and uninfluenced through our sponsors. We’re transparent regarding how we’re in a position to provide quality information, competitive rates and helpful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the promotion of sponsored goods andservices or through you clicking certain links posted on our site. This compensation could impact how, where and in what order the products are listed within categories, with the exception of those it is prohibited by law for our mortgage or home equity products, as well as other products for home loans. Other factors, such as our own rules for our website and whether or not a product is offered in your area or at your self-selected credit score range can also impact the manner in which products appear on this site. While we strive to provide the most diverse selection of products, Bankrate does not include information about each credit or financial item or product. A down payment is comprised of the cash you have available, the worth of the trade-in, and any rebates you are eligible for. All of them work to reduce the amount you’ll need to be able to. They demonstrate to lenders that you’re serious, which in turn could help you secure an improved interest rate. What is the best down amount?

Experts recommend a down payment that is at minimum 20 percent for a new car 10 percent for a car you’re buying used. It’s not a bad idea to make a bigger deposit to save money on interest, but only if you have the money to.

Five benefits of making a down payment Down payments are usually required by lenders. They typically require at least 10% down. But even if it is not required, it is nonetheless worth it. In the end, it will save you money each month and allow you to pay less interest. 1. A lower monthly installment As putting money down decreases the amount you’ll need to take out, you will be able to pay less every month, which means lower monthly payments. It’s easy to comprehend the mathematics. Utilize an estimate to calculate monthly payments. If you take out $30,000 with 5 percent interest over the duration of 48 months, then you’ll have to pay an average of $691 per month. With a 20 percent down amount of $6,000, you’ll reduce the amount you need to borrow down to $24,000. And that results in the monthly installment of $553. 2. More equity starting out Equity is the difference between the amount you have for a vehicle and its potential price at sale. Large down payments increase your equity because you don’t have to finance more through a lender. Cars are an asset . As values of the car diminishes, you’re likely to go upside down on your loan — if you have more debt than the value of your vehicle. A larger down payment protects against depreciation as the equity serves as a buffer. Since you own a bigger part of your vehicle at the beginning by making a larger down payment, you’re less likely to be paying for the loan that is higher than you could sell your car for. 3. A lower interest rate The most significant benefit of having a larger down payment is that it decreases the amount you need to be able to. When you borrow less, you have to pay less in interest. More money in your pocket and less in the lender’s — is always a good thing. Like the example of a monthly payment, a 20 percent down payment can make a big difference in the cost for an automobile loan. If you borrow that same $30,000 at a 5 percent interest rate over the course of 48 months, you’ll be paying 3162 dollars in interest. With a $6,000 downpayment that’s only $2,530 over the life of your loan. 4. Potentially reduced rates Some lending institutions might be willing to give you the opportunity to get a loan if you’ve made a significant down payment. Because a down payment shows that you are able to manage money, you’ll be less risky to the lender. There are many factors that influence your interest rate, including the credit score and your income, so it’s far from guaranteed. However, a substantial deposit is something that lenders consider and can help make up for areas you might 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 deal breaker. However, a lower credit score can mean that you’ll get a higher interest rate, or even being turned down for an loan. However, if you’re able pay a down payment, you could strengthen your chances of approval or get the lender to give you more competitive financing terms. Experts suggest putting at least 20 percent of the cost. The most commonly used advice is to deposit 20 percent or more in the vehicle. More, of course, is preferable. The less you have to finance the less you have to finance, the better. But it is quite a sum of money. In 2022, the average new car price topped out at just under $40,000 in the month of June as per Kelley Blue Book (KBB). A 20 % down payment for that would be $9,600. Even used cars are averaged at — which amounts to $5,600 for a 20 percent down payment. These are averages, so you’ll be able to find more expensive options. But be aware that prices will continue to go up because of global shortages on important parts such as semiconductors. It is not a good idea to deplete your savings to pay for a down payment. Benefit from rebates when you are looking to purchase a brand new vehicle or used, and look around to find a . Selling it or trading it at a dealership can go a long way to getting you at that coveted 20 percent threshold. If you are unable to afford 20 percent, you’re allowed to put down as little at 10 percent. Some dealers that work with might only require a $1,000 down payment. No matter what, make sure to deposit as much as you can to avoid taking out a big loan that could leave you with a huge debt. Do not put down any money at all. should always have a down payment when buying cars. Certain experts suggest it may not be required if you’re able to score — but most people aren’t eligible for this. Dealers offer zero-down financing because they can earn the most interest. It is, after all, the opposite of a large down payment. With low interest rates, you will wind up needing to finance more. That’s more interest to pay and a higher chance of becoming . Zero-down offers may include a way to help offset the cost of monthly payments. This is the most dangerous trap. The longer your loan duration is, the more you have to pay to the lender. The next steps: The more you can pay upfront to the lender, the better off you’ll be. A 20% down payment is the most common amount however you can make a bigger deposit when you are able to afford it. Be sure to not pay under 10 percent, or $1,000 and especially if you have — so you can still enjoy a favorable interest rate. It is important to research the prices of auto loans and find financing before you begin shopping for a car. In this way, you’ll know precisely how much you can afford and also how much you’ll need to pay to make a big down cost. Find out more


Written by Allison Martin’s work began over 10 years ago when she was a digital content strategist and she’s since been featured in several leading financial outlets such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to control their finances through providing precise, well-studied information that breaks down otherwise complex subjects into bite-sized pieces.

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