Highlights:
- The typical down payment for a car is between 10% and 20% of the vehicle's total value.
- Your credit scores may impact the size of your required down payment. Higher credit scores may reduce a lender's down payment requirements.
- The size of your down payment depends on a number of factors, including the cost of the vehicle, its age, your credit scores and other financial details.
When you're in the market for a new car, your down payment can make or break your budget. The size of your down payment depends on a number of factors, including the cost of the vehicle, its age, your credit scores and other financial details.
What is the average down payment on a car?
The typical down payment for a car is between 10% and 20% of the vehicle's total value. Used cars usually require down payments closer to 10%, while the down payment for a brand-new car is generally closer to 20%.
As with a mortgage, the down payment for an auto loan is a major expense. Even if 10% down is out of your price range, you can still sometimes negotiate with lenders to agree on an amount that better suits your finances. You may even qualify for a zero-down auto loan. However, it's generally a good idea to make a larger down payment whenever you're able.
Benefits of a large car down payment
Although not every auto loan requires a down payment, it's usually in your best interest to make one. Why? It all comes down to cost.
A bigger down payment will likely result in a lower interest rate on your auto loan. That's because any cash you supply up front helps decrease the amount of risk to the lender.
A bigger down payment also helps you build equity in your new vehicle. Equity is the amount of money you have invested in an asset, minus the balance on your loan and any other liabilities. Ideally, you will have what's known as positive equity in your vehicle, which means its market value is greater than the amount you owe the lender.
Finally, a bigger down payment can help you save on your loan's total cost. The more you put down up front, the less you'll have left to finance over time. So, a larger down payment may help lower your monthly loan payments and reduce the amount of money you spend on interest.
How to make a low car down payment
Large down payments have many benefits, but they're not affordable for every borrower. Luckily, if you must make a low or zero down payment, you can still take steps to help offset the financial downsides.
Trading in an old vehicle can supplement a small down payment. As long as you have positive equity in your old car, the value of your trade-in can help add to the value of a cash down payment.
Optional gap insurance can help prevent financial loss for a borrower who has not yet built positive equity in their vehicle. For example, if you're involved in a collision before you've established positive equity, standard insurance generally won't cover the difference between the car's original value and what you owe. This means you may be required to repay the remainder of your loan, even if your car is totaled. Gap insurance helps shield you from this out-of-pocket cost.
How do credit scores affect down payments?
Like most loans, your car loan may be directly impacted by your credit scores. Borrowers with higher credit scores generally receive more favorable credit terms, which can translate into smaller monthly payments and lower interest costs over the life of the loan.
Your credit scores may also impact a lender's down payment requirements and your ability to be approved for a loan. Borrowers with the highest credit scores are generally more likely to see the lowest down payment requirements and to be approved for their loan, even with a down payment below the 20% standard.
But how large should your down payment be if you have a negative credit history? Because a down payment can provide a helpful counterweight to low credit scores, it should be as much as you can reasonably afford. In fact, lenders may even require a larger down payment to help offset the risk of a borrower with poor credit.
Coming up with a 20% down payment for your car can be a challenge. However, paying more upfront often saves you money in the long run. If you're looking to buy a new vehicle, aim to create a long-term savings strategy that allows you to set aside a down payment that won't break your budget.
FAQs
The typical down payment for a car is between 10% and 20% of the vehicle's total value. Used cars usually require down payments closer to 10%, while the down payment for a brand-new car is generally closer to 20%. As with a mortgage, the down payment for an auto loan is a major expense.
How much money should you have for a down payment for a car? ›
In general, you should strive to make a down payment of at least 20% of a new car's purchase price. For used cars, try for at least 10% down. If you can't afford the recommended amount, put down as much as you can without draining your savings or emergency funds.
Is $3000 enough for a down payment on a car? ›
Consider putting at least $6,000 down on a $30,000 car if you're buying it new or at least $3,000 if you're buying it used. This follows the guidelines of a 20% down payment for a new car or a 10% down payment for a used car.
Is $2000 enough for a down payment on a car? ›
If you're considering a car that costs $25,000, putting down between $2,000 and $4,000 would be wise. However, the true answer to this question depends on your negotiation strategy. If you can negotiate a lower price or better terms, putting more money down may not save you much interest.
How do I calculate a down payment on a car? ›
A down payment is calculated as a percentage of the final purchase price. For example, if a car you're looking at is $30,000, here are a few different scenarios based on the percentage you may want to put down: A 5% down payment is $1,500. A 10% down payment is $3,000.
What is the best way to pay down payment on a car? ›
Cash. Cash is typically the most cost-effective way of making your down payment. With cash, you are more likely to be able to bypass a dealership's convenience fees, which can be as high as 4%.
What credit score is needed to buy a car? ›
Key Takeaways: While you can find financing with any credit score, a good credit score for a car loan is usually between 670 and 850. Your credit score is affected by many factors including payment history, amounts owed/utilization, length of credit history, credit mix, and new credit.
Is it smart to put money down on a car? ›
Down payments are usually a necessity. Lenders frequently want at least 10 to 15 percent down. And it may be better for your finances to put down even more. After all, it can save you money each month and help you pay less interest.
What is a good car payment? ›
Keep Your Car Payment Under 15% of Your Net Income
“A widely accepted rule is that your car payment should not exceed 15% of your monthly take-home pay,” said Jeff Rose, a certified financial planner and founder of Good Financial Cents. If you earn $70,000 a year after taxes, that breaks down to roughly $5,833 a month.
What are the disadvantages of a large down payment on a car? ›
What Are the Disadvantages of a Large Down Payment? Providing more money down doesn't guarantee a lower interest rate, and it can cut into your savings.
Can you use a credit card for a car down payment? Putting a car down payment on a credit card is an option that many dealers are open to. Dealers may be more willing to allow this type of payment for the total amount, or a partial amount, of your car's down payment.
Who has the lowest auto loan rates? ›
Compare Car Loan Rates
| Top Auto Loan Lender | Lowest APR | Our Award |
|---|
| AutoPay | 4.67%** | Best Auto Loan Rates |
| PenFed Credit Union | 5.24% | Best Credit Union Auto Loan |
| Auto Approve | 5.24%** | Best Auto Refinance Rates |
| Consumers Credit Union | 6.54% | Excellent Credit Union Auto Loan |
3 more rowsCar Loan APRs by Credit Score
Excellent (750 - 850): 2.96 percent for new, 3.68 percent for used. Good (700 - 749): 4.03 percent for new, 5.53 percent for used. Fair (650 - 699): 6.75 percent for new, 10.33 percent for used. Poor (450 - 649): 12.84 percent for new, 20.43 percent for used.
How much down payment do I need for a $20,000 car? ›
If your credit score isn't good, however, you're typically required to make a down payment of at least $1,000 or 10% of the vehicle's selling price. This varies by lender, and some may accept the lesser amount. On a $20,000 car, that would be up to $2,000 down.
Is $1000 a good down payment for a car? ›
If you're looking to purchase a used car for around $10,000, then $1,000 is a decent down payment. It's widely advised to put down at least 10% of the vehicle's value to increase your odds of getting approved for a loan, and to minimize your interest charges.
Is 500 enough for a downpayment on a car? ›
The appropriate amount of down payment will differ from lender to lender. However, you should at least put down $1000 or 20% of the car's value. A decent credit history can make $500 of down payment work. However, if you are dealing with bad credit, it is best to try for more.
Is 50% too much of a down payment for a car? ›
If you want to, you can definitely make a 50% down payment on a car if you have the cash. It's uncommon, but as long as you finance at least the minimum amount – usually $5,000 if you have bad credit – lenders don't have a problem with you making a really big down payment.
