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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 smarter financial decisions by providing you with interactive tools and financial calculators, publishing quality and accurate content by allowing you to conduct your own research and compare information for free to help you make financial decisions with confidence. Bankrate has partnerships with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this site are from companies who pay us. This compensation can affect the way and when products are featured on this site, including for instance, the order in which they may be listed within the categories of listing in the event that they are not permitted by law. This applies to our loans, mortgages, and other home loan products. But this compensation does not influence the information we provide, or the reviews you see on this site. We do not include the universe of companies or financial deals that might be accessible to you. DjelicS/Getty Images

4 min read Published September 21 2022

Written by Allison Martin Written by Allison Martin’s work started over 10 years ago as a digital media strategist, and she’s since been featured in a variety of top financial publications, 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 from late 2021. They are passionate about helping readers gain confidence to manage their finances with precise, well-researched, and well-studied information that breaks down otherwise complicated topics into bite-sized pieces. The Bankrate promises

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If you have questions about money. Bankrate has answers. Our experts have helped you understand your money for over four years. We continually strive to provide consumers with the expert advice and tools required to be successful throughout their financial journey. Bankrate follows a strict standard of conduct, which means that you can be sure that our content is honest and reliable. Our award-winning editors and reporters produce honest and reliable content that will help you make the right financial choices. The content we create by our editorial team is factual, accurate and uninfluenced from our advertising. We’re transparent regarding how we’re capable of bringing high-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 or services, or by you clicking on specific links on our site. So, this compensation can affect the way, location and when the products are listed within categories, unless prohibited by law for our mortgage or home equity products, as well as other home loan products. Other factors, like our own website rules and whether or not a product is offered in your area or at your own personal credit score can also impact how and where products appear on this site. We strive to offer the most diverse selection of products, Bankrate does not include details about each credit or financial product or service. A down payment includes the money you have on hand, the value of your trade-in as well as any rebates that you qualify for. All of these work together to cut down on the amount you need to be able to. They let lenders know that you’re serious, which could help you secure a better interest rate. What is the best down payment?

Experts suggest a down payment in the range of 20 to 20 percent when buying a new car and 10 percent if you’re buying used. It’s not a bad idea to pay more down to get the most savings from interest however only if you have the money to.

Five benefits that come with a down down payments are often a necessity — lenders frequently want at least 10 percent down. But even if it is not required, it’s nonetheless worthwhile. It will save you money each month and help you pay less interest. 1. Lower monthly payment Because putting money down lowers the overall amount you need to take out, you will be able to pay less every month, which results in a lower monthly payment. It’s easy to comprehend the mathematical. Utilize an estimate to calculate monthly payment. If you loan $30,000 at 5 percent interest for up to 48 month, you’ll pay each month $691. If you make a 20% down payment of $6,000, you’ll reduce the amount you need to borrow to only $24,000. That’s 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. The larger down payment will improve your equity as you don’t have to finance as much by an lender. Cars are an investment . When you’re vehicle diminishes, you’re likely to be upside-down on your loan which means you have more debt than the value of your car. A higher down payment will protect against depreciation because the equity acts as buffer. Since you own a bigger part of your car starting with a higher down payment, you are less likely to be in an loan that costs more than you could sell your car for. 3. Lower interest costs The main advantage of a substantial down payment is that it lowers the amount you need to borrow. If you are able to borrow less you will have to pay less in interest. More money in your pocket — and less in the bank’s pocket -is always a positive thing. Just like with the monthly payment example, a 20 percent down payment can make a huge difference in the price of an auto loan. If you take out $30,000 at a 5 percent interest rate over 48 months, you’ll pay $3,162 in interest. With a $6,000 downpayment that’s only $2,530 over the course of the loan. 4. Potentially better rates Certain lenders may offer you an offer if you’ve got an impressive down payment. Since a down payment indicates you know how to handle money it will make you less of a risk to the lender. There are numerous variables that affect your interest rate, including the credit score and your income, so it’s not a guarantee. However, a substantial down payment is something lenders consider and can aid in covering areas where you aren’t so strong in. 5. Better acceptance rate If you have excellent or great credit, not having to put money down could not be a deal breaker. But a lower credit score could mean you’ll be charged a higher rate or, worse you’ll be denied a loan. However, if you’re able put down a down payment you could strengthen your odds of getting approved or get the lender to provide you with more competitive financing terms. The experts recommend that you put down at least 20 percent. The most popular recommendation is to put down at least 20 percent in a vehicle. More, of course, is preferable. The less you need to finance the more you can afford. However, it’s an enormous amount of money. In 2022, the average new car cost topped slightly over $48,000 in June, according to Kelley Blue Book (KBB). A 20 % down payment of that amount is $9,600. Even used cars averaged out with — and that amounts to $5,600 for a 20 per cent down. These are just averages, and you’ll definitely be able to find less expensive options. But be aware that prices will continue to rise due to shortages in the world of vital components like semiconductors. You certainly don’t want to deplete your savings for a down payment. Take advantage of discounts if you’re looking to purchase a brand new vehicle, and shop around to find a . Selling it or trading it in 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 put down as little as 10 percent. Certain dealers might only require a $1,000 down payment. However, you should make sure to deposit the most you can in order to avoid taking out a big loan that can 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 an automobile. Certain experts suggest it may not be necessary if you’re able to score some kind of loan, but the majority of buyers aren’t eligible for this. Dealers provide zero-down financing since they can earn the most in interest. It is, after all, an alternative to a huge down payment. Even at low rates, you’ll end having to borrow more. That’s more interest to pay and a greater chance of becoming . A zero-down offer may also include a way to help offset the cost of monthly payments. This is the biggest trap. The longer your loan term, the more you must pay the lender. The next step is the more you pay upfront, the better off you’ll be. A down payment of 20 percent is the go-to amount, but you can always put down more if you can afford it. Just avoid paying less than 10 percent or $1000 and especially when you’ve got it — so you can still enjoy a favorable interest rate. Make sure you compare auto loans and find financing before you begin shopping for a car. This way, you will be aware of the amount you can afford and how much you’ll need to pay for a substantial down cost. Learn more

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Allison Martin’s work started over 10 years ago when she was an online content strategist and since then she’s been published in several leading financial outlets which include 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 editing and writing for Bankrate since the end of 2021. They are passionate about helping readers feel confident to control their finances by providing concise, well-researched and well-written details that cut otherwise complex subjects into bite-sized pieces.

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