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4 min read published September 21 2022

Written by Allison Martin Written by Allison Martin’s work began over 10 years ago as a digital content strategist. She’s been published in several leading 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 editing and writing for Bankrate since late 2021. They are committed to helping readers gain the confidence to manage their finances with clear, well-researched information that breaks down complicated subjects into digestible pieces. The Bankrate promises

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Experts recommend a downpayment that is at minimum 20 percent for the purchase of a brand new vehicle and 10 percent if you’re buying a used. It’s not bad to make a bigger deposit to maximize interest savings, but only if you have the money to.

Five benefits that come with a down payment Down down payments are often required by lenders. They frequently want at least 10% down. Even if it’s not mandatory, it’s nevertheless worth it. It will help you save money every month, and also help you pay lower interest. 1. A lower monthly installment Because putting money down lowers the total amount you have to borrow, you can expect to pay less each month, which means you pay less monthly. It’s easy to comprehend the mathematical. You can use an app to estimate monthly installments. If you take out $30,000 with 5 percent for 48 months, you’ll have to pay $691 a month. If you make a 20% down payment of $6,000, you’ll lower the amount you have to borrow to just $24,000. That’s the monthly installment of $553. 2. The equity you earn when you start is the difference between the amount you have for a car and its possible sale price. A large down payment can increase your equity because you won’t require financing the same amount through an lender. Cars are an asset . As you’re vehicle diminishes, you’re likely to be upside down on your loan which means you have more debt than your car is worth. A higher down payment will protect against depreciation as the equity acts as a buffer. Since you own a bigger part of your car from the start by making a larger down payment, you’re less likely to be in a loan that costs more than what you can sell your car for. 3. A lower interest rate The most significant benefit of a large down payment is that it reduces the amount you must take out. If you are able to borrow less you will pay less interest. The more money you have in your pockets and less in the bank’s pocket -is always a positive thing. Just like with the example of the monthly payment 20 percent down payment can make a big difference in the price for an automobile loan. If you borrow that same $30,000 with a 5 percent interest rate for two years, then you’ll have to pay 3162 dollars of interest. With a $6,000 downpayment and a loan of $2,530, you’ll pay only $2,530 over the duration of your loan. 4. Possibly lower rates Some lenders may be willing to give you an offer if you’ve got an impressive down payment. Because a down payment shows that you are able to manage money it will make you less risky to the lender. There are many factors that influence your interest rate, including credit score and income, and this is far from guaranteed. Still, a large down payment is something that lenders look at and could help make up for areas that you may not be as strong in. 5. A higher acceptance rate if you have excellent or great credit, not having to put money down may not be a deal breaker. But a lower credit score means you’ll pay a higher interest rate or, worse you’ll be denied a loan. But if you’re able to put down a down payment you may increase your approval odds or get the lender to provide you with better financing terms. Experts suggest putting at least 20 percent of the cost. The most popular recommendation is to put down 20 percent or more on a vehicle. A higher amount, naturally, is preferred. The less you need to finance the more you can afford. However, it’s a lot of money. In 2022 the average new car price was just a little over 48,000 dollars in July, as per Kelley Blue Book (KBB). A 20 percent down payment on that is equal to $9,600. Even used cars are averaged to — that amounts to $5,600 for a 20 percent deposit. These are just averages, and you will certainly be able to find more expensive alternatives. Just know that prices continue to rise due to shortages in the world of vital parts like semiconductors. You certainly don’t want to use up your savings for a down payment. Benefit from rebates when you are looking to buy new or used, and look around for . Selling or trading it in at a dealership can go a long way to getting you at that coveted 20 percent mark. If you are unable to afford 20 percent, you’re able to make a deposit as low 10. Some dealers could only require a $1000 down payment. Whatever the case, make sure to deposit as much as possible to avoid taking out a big loan that could leave you in a position of being upside down. Do not put down any money at all. must always make an amount of money to pay down when purchasing a car. Certain experts suggest it may not be needed if you’re able to score — but most people won’t qualify for that. Dealers offer zero-down financing because they stand to make the most in interest. After all, it is the exact opposite of a substantial down amount. Even with low rates, you’ll wind up needing to finance more. That means more interest paid and a higher chance of being . A zero-down deal could also come with a to offset higher monthly payments. This is the biggest drawback. 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 pay upfront and the more secure you’ll be. A 20% down payment is the most common amount, but you can always put down more when you are able to afford it. Just avoid paying less than 10 percent or $1,000 — especially when you’ve got it an existing credit card, so that you can still get a good interest rate. Make sure you compare automobile loans and locate financing prior to you start car shopping. This way, you will know precisely how much you are able to afford and how much you will need for a large down payment. Learn more


Allison Martin’s work began over 10 years ago as a digital 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. 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 with precise, well-studied details that cut otherwise complex topics into manageable bites.

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