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 smarter financial decisions by offering you interactive tools and financial calculators that provide authentic and impartial content through allowing you to conduct research and compare information for free to help you make informed financial decisions. Bankrate has agreements with issuers such as, 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 could affect how and where products appear on this site, including the order in which they be listed within the categories of listing in the event that they are not permitted by law. This applies to our loan products, such as mortgages and home equity, and other products for home loans. But this compensation does have no impact on the information we publish, or the reviews appear on this website. We do not contain the vast array of companies or financial offers that may be open to you. DjelicS/Getty Images

4 min read Published September 21, 2022

Written by Allison Martin Allison Martin Written by Allison Martin’s work began over 10 years ago as a digital media strategist. She’s published in numerous prestigious financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Editor: Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down complicated topics into bite-sized pieces. The Bankrate promise

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Experts suggest a down payment of at least 20 percent to purchase an automobile that is brand new and 10 percent if you’re buying used. It’s not bad to put down more to save money on interest, but only if you can afford to.

5 advantages to making a payment Down down payments are often required by lenders. They generally require at minimum 10 percent down. Even if it’s not mandatory, it’s nevertheless worth it. It will help you save money every month and help you pay lower interest. 1. Lower monthly payments As putting money down decreases the overall amount you need to pay, you are likely to pay less every month, which results in lower monthly payments. It’s simple to understand the mathematics. Use an to estimate monthly payments. If you loan $30,000 at 5 percent interest over 48 months, you’ll have to pay an average of $691 per month. With a 20 percent down payment of $6,000, you’ll reduce the amount you have to borrow down to $24,000. This will result in a monthly payment of $553. 2. A higher equity level when you first start out. Equity is the difference between the amount you have for a car and its potential sale price. A large down payment can boost your equity since you won’t need to finance as much via a lender. Cars are a . When the value of your car diminishes, you’re likely to be upside-down on your loan — if you owe more than the value of your car. A greater down payment guards against depreciation as the equity acts as a buffer. Since you own a greater part of your car at the beginning with a greater down payment, you’re less likely to get stuck with an loan that costs more than what you could sell your car for. 3. Lower interest costs The main benefit of a large down payment is that it lowers the amount you must be able to. When you borrow less you will have to pay less in interest. The more money you have in your pockets — and less in the lender’s pockets -is always a positive thing. Similar to the example of the monthly payment, a 20 percent down payment can make a huge difference in the cost on an auto loan. If you borrow that same $30,000 with a 5 percent interest rate over 48 months, you’ll be paying 3162 dollars of interest. If you make a down payment of $6,000, you’ll only pay $2,530 over the life of your loan. 4. Possibly reduced rates Some lending institutions might be willing to offer a if you have a significant down payment. Since a down payment indicates that you are able to manage money, you’ll be less risky to the lender. There are numerous aspects that impact your interest rate, including the credit score and your income, so this is far from guaranteed. However, a substantial down payment is something lenders consider and can help make up for areas you might not be so strong in. 5. Better acceptance rate If you have excellent or good credit, not having to put money down could not be a problem. A lower credit score can mean that you’ll be charged a higher rate or, even worse you’ll be denied an loan. However, if you’re able make a down payment, you may increase your approval odds or convince the lender to give you better terms on financing. The experts recommend that you put down at least 20 percent The most common advice is to pay at least 20 percent on an automobile. A higher amount, naturally, is preferred. The lower the amount you must finance the less you have to finance, the better. But it is a lot of money. In 2022, the median new car cost topped slightly over $40,000 in the month of 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 to — that equates to $5,600 with a 20 percent down payment. These are averages, so you will certainly be able to find more expensive alternatives. Be aware that prices are likely to go up because of shortages in the world of vital components like semiconductors. You don’t want to use up your savings to pay for a down payment. Take advantage of rebates when you are looking to purchase a new car and then search to find a . Selling or trading it at a dealership could go a long way to getting you at that coveted 20 percent threshold. If you are unable to afford 20 percent, it’s okay to make a deposit as low 10. Certain dealers might only require a $1,000 down payment. However, you should ensure that you put down the most you can in order to avoid taking out a big loan that can leave you upside down. Don’t put any money down. must always make an amount of money to pay down when purchasing cars. Some experts say it might not be required when you’re able to get a good credit score some kind of loan, but the majority of buyers will not be able to qualify for that. Dealers offer zero-down financing because they stand to make the most in interest. In the end, it’s the opposite of a large down payment. With low interest rates, you will wind having to borrow more. That means more interest paid and a greater likelihood of being . Zero-down offers may come with a to help offset the cost of monthly payments. This is the biggest trap. The longer your loan duration, the more you have to pay the lender. Next steps The more you pay upfront to the lender, the better off you will be. A down payment of 20 percent is the go-to amount however you can pay more if you can afford it. Just avoid paying more than 10% or $1,000 and especially if you have — so you can still secure a competitive interest rate. It is important to research the prices of auto loans and look for financing before you begin shopping for a car. In this way, you’ll be aware of the amount you can afford and how much you’ll need to pay to pay for a substantial down cost. Learn more


Written by Allison Martin’s work began over 10 years ago when she was a digital content strategist and she’s since been published in a variety of top financial publications which include 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 since late 2021. They are passionate about helping readers feel confident to take control of their finances with clear, well-researched details that cut otherwise complicated topics into digestible pieces.

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