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 smarter financial decisions by providing you with interactive tools and financial calculators that provide original and objective content, through allowing you to conduct research and compare data for free and help you make sound financial decisions. Bankrate has partnerships with issuers such as, but not restricted 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 pay us. This compensation can affect the way and where products appear on the site, such as for instance, the sequence in which they appear within the listing categories, except where prohibited by law for our mortgage, home equity, and other home loan products. This compensation, however, does have no impact on the information we provide, or the reviews that you see on this site. We do not cover the entire universe of businesses or financial offerings that could be available to you. DjelicS/Getty Images

4 min 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 published in numerous prestigious financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain confidence to control their finances with concise, well-researched and reliable information that breaks down otherwise complicated topics into bite-sized pieces. The Bankrate promises

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There are money-related questions. Bankrate has the answers. Our experts have been helping you manage your finances for more than four years. We continually strive to provide our readers with the professional advice and tools required to succeed throughout life’s financial journey. Bankrate adheres to a strict code of conduct , so you can trust that our content is honest and accurate. Our award-winning editors and journalists produce honest and reliable content to help you make the right financial choices. The content created by our editorial team is objective, factual, and not influenced from our advertising. We’re open regarding how we’re capable of bringing high-quality information, competitive rates and helpful tools to you by describing how we earn money. is an independent, advertising-supported publisher and comparison service. We receive compensation for the placement of sponsored products and, services, or when you click on certain links posted on our site. So, this compensation can impact how, where and in what order products appear within listing categories, unless the law prohibits it for our mortgage or home equity products, as well as other products for home loans. Other factors, like our own website rules and whether or not a product is available in the area you reside in or is within your own personal credit score can also impact the manner in which products appear on this site. We strive to offer a wide range offers, Bankrate does not include specific information on every financial or credit products or services. A down payment includes the cash you have in your account, the amount of the trade-in, and any rebates that you qualify for. All of these work together to reduce the amount you have to take out. They show lenders you are serious, which in turn can help you score an interest rate that is better. What is a suitable down payment?

Experts recommend a down payment that is at minimum 20 percent to purchase an automobile that is brand new and 10 percent if you’re purchasing a used. It doesn’t hurt to make a bigger deposit to get the most savings from interest however only if you have the money to.

Five benefits to making a down payments are often required by lenders. They generally require at minimum 10 percent down. But even if it is not required, it’s nevertheless worth it. In the end, it will help you save money every month and help you pay less interest. 1. A lower monthly installment As putting money down decreases the amount you’ll need to pay, you are likely to pay less every month, which results in a lower monthly payment. It’s easy to comprehend the mathematics. Use an to estimate monthly installments. If you take out $30,000 with 5 percent for up to 48 month, you’ll be paying $691 a month. With a 20 percent down amount that’s $6,000 you’ll lower the amount you need to borrow to only $24,000. This will result 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 sale price. Large down payments boost your equity since you won’t need to finance as much via the lender. Cars are an investment . As the value of your car decreases, you’re more likely to go upside down with your loan — if you have more debt than the value of your car. A larger down payment protects against depreciation as the equity serves as a buffer. Because you own a larger portion of your car starting with a higher down payment, you’re less likely to be with the loan which is more expensive than what you could sell your car for. 3. Lower interest costs The main benefit of having a larger deposit is the fact that it lowers the amount you must borrow. If you’re borrowing less you are paying less. The more money you have in your pockets — and less in the bank’s pocket -is always a positive thing. Similar to the example of a monthly payment that a 20% down payment can make a huge difference in the price of an auto loan. If you borrow that same $30,000 at a 5 percent interest rate over two years, then you’ll have to pay 3162 dollars of interest. If you make a down payment of $6,000 and a loan of $2,530, you’ll pay only $2,530 over the life of your loan. 4. Potentially better rates Certain lenders may be willing to give you the opportunity to get a loan if you’ve made a significant down payment. Because a down payment shows you have the ability to manage money and you’ll be less of a risk for the lender. There are many aspects that impact the rate of interest you pay, such as the credit score and your income, and it’s not a guarantee. However, a substantial amount of downpayment is one lenders will consider and could assist in overcoming areas that you may not be as strong in. 5. Better acceptance rate If you have excellent or good credit, not putting money down could not be a major issue. But a lower credit score could mean you’ll pay a higher interest rate or, worse being turned down for the loan. But if you’re able to put down a down payment you could strengthen your approval odds 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 deposit 20 % or greater in the vehicle. A higher amount, naturally, is better. The lower the amount you must finance, the better. But it is quite a sum of money. In 2022, the median new car price was at just under $40,000 in the month of June as per Kelley Blue Book (KBB). A down payment of 20 percent for that would be $9,600. Even used vehicles averaged at — which equates to $5,600 for a 20 percent deposit. These are just averages, and you will certainly have the ability to find less costly options. But be aware that prices will continue to increase due to the global shortage of essential parts like semiconductors. You certainly don’t want to deplete your savings for a down payment. Benefit from rebates when you are looking to buy new, and shop around for . Selling it or trading it in at a dealership could go a long way in getting you to the sought-after 20 percent mark. If you absolutely can’t afford 20 percent, you’re allowed to put down as little as 10 percent. Certain dealers could only require a $1000 down payment. However, you should try to put down as much as possible to keep from taking out a huge loan which could put you in a position of being upside down. Avoid putting nothing down You must always make a down payment when buying cars. Some experts believe it may not be required when you’re able to get a good credit score however the majority of people won’t qualify for that. Dealers offer zero-down financing because they are able to earn the most interest. In the end, it’s the opposite of a large down cost. Even at low rates, you’ll wind up needing to finance more. That means more interest paid and a greater likelihood of being . A zero-down deal could also include a way to offset higher monthly payments. This is the biggest trap. The longer the loan duration is, the more you have to must pay the lender. The next step is the more you are able to pay in advance, the better off you’ll be. A down payment of 20 percent is the most common amount however you can put down more when you are able to afford it. Just avoid paying more than 10% or $1,000 particularly when you’re in a position to — so you can still secure a competitive interest rate. Take the time to compare auto loans and locate financing prior to you begin shopping for a car. This way, you will know exactly how much you can afford and how much you’ll need to pay to make a big down amount. Learn more


Written by Allison Martin’s work began more than 10 years ago when she was a digital content strategist and since then she’s been published in several leading financial outlets such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are dedicated to helping their readers gain the confidence to control their finances with precise, well-studied information that breaks down complex topics into manageable bites.

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