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 better financial decisions by offering you interactive tools and financial calculators, publishing quality and accurate content by allowing you to conduct your own research and compare information for free – so that you can make informed financial decisions. Bankrate has agreements with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that are advertised on this website are provided by companies that compensate us. This compensation may impact how and when products are featured on the site, such as the sequence in which they appear in the listing categories in the event that they are not permitted by law. This applies to our loan products, such as mortgages and home equity and other home lending products. This compensation, however, does affect the information we provide, or the reviews that appear on this website. We do not cover the entire universe of businesses or financial deals that might be available to you. DjelicS/Getty Images
4 min read published September 21 2022
Written by 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 Credit.com. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances through providing concise, well-researched and reliable information that breaks down complex topics into manageable bites. The Bankrate guarantee
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Experts suggest a down payment of at least 20 percent to purchase a new car and 10 percent if you’re purchasing a used. It doesn’t hurt to pay more down to get the most savings from interest However, only if you have the money to.
5 advantages to making a payments are usually necessary — lenders generally require at minimum 10 percent down. Even if it’s not required, it is nonetheless worthwhile. 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 overall amount you need to borrow, you can expect to pay less each month, which translates into lower monthly payments. It’s easy to see the mathematics. Utilize an estimate to calculate monthly installments. If you borrow $30,000 at 5 percent interest over up to 48 month, you’ll pay an average of $691 per month. If you make a 20% down payment in the amount of $6000, you’ll reduce the amount you have to borrow to only $24,000. That’s a monthly payment of $553. 2. More equity starting out Equity is the difference between what you own for a vehicle and its potential price at sale. A large down payment can boost your equity since you don’t have to finance as much by an lender. Cars are an asset . When the value of your car declines, you’re more likely to end up upside down on your loan which means you are owed more than what your car is worth. A greater down payment guards against depreciation as the equity acts as a buffer. Since you own a bigger portion of your car from the start by making a larger down payment, you’re less likely to end up paying for a loan which is more expensive than what you can sell your vehicle for. 3. A lower interest rate The most significant advantage of a substantial deposit is the fact that it decreases the amount you have to be able to. When you borrow less you will pay less interest. More money in your pocket — and less in the bank’s pocket — is always a good thing. Just like with the monthly payment example 20 percent down payment can make a huge difference in the cost on an auto loan. If you take out $30,000 with a 5 percent interest rate for the course of 48 months, you’ll have to pay $3,162 in interest. With a $6,000 downpayment, you’ll only pay $2,530 over the course that the loan. 4. Possibly lower rates Some lenders might be willing to offer a if you have a significant down payment. Because a downpayment shows you know how to handle money, you’ll be less of a risk to the lender. There are numerous aspects that impact the rate of interest you pay, such as credit score and income, and this is far from guaranteed. However, a substantial down payment is something lenders will consider and could help make up for areas where you aren’t so strong in. 5. Higher acceptance rate If you have excellent or great credit, not putting any money down could not be a deal breaker. However, a lower credit score can mean that you’ll pay a higher interest rate, or even, be turned down for an loan. But if you’re able to make a down payment, you may increase your odds of getting approved or get the lender to provide you with more competitive financing terms. Experts recommend putting down at least 20 percent. The most commonly used advice is to pay at least 20 percent on a vehicle. More, of course, is preferred. The less you need to finance the less you have to finance, the better. However, it’s quite a sum of money. In 2022, the median new car cost topped at just under $40,000 in the month of June according to Kelley Blue Book (KBB). A 20 percent down payment for that would be $9,600. Even used cars averaged out to — that equates to $5,600 with a 20 percent down payment. These are averages, therefore you’ll definitely be able to find more costly options. Be aware that prices are likely to go up because of the global shortage of essential parts such as semiconductors. It is not a good idea to use up your savings for a downpayment. Take advantage of discounts if you’re looking to purchase a new car and then search for a . Selling it or trading it into a dealer will go a long ways to getting you at that desired 20 percent mark. If you are unable to afford 20 percent, it’s okay to put down as little as 10 percent. Some dealers could only require a $1000 down payment. Whatever the case, ensure that you put down as much as you can to keep from taking out a huge loan which could put you with a huge debt. Avoid putting nothing down You must always have a down payment in the event of buying a car. Some experts say it might not be needed if you’re able to score some kind of loan, but the majority of buyers aren’t eligible for this. Dealers will offer financing with no down payment because they stand to make the most in interest. It is, after all, the exact opposite of a substantial down amount. Even with low rates, you’ll end in needing to finance more. That’s more interest to pay and a greater likelihood of being . A zero-down offer may also be accompanied by a plan to help offset the cost of monthly payments. This is the most dangerous trap. The longer your loan duration, the more you have to pay the lender. The next step is the more you pay upfront and the more secure you will be. A 20% down payment is the standard however you can pay more depending on your budget. Be sure to not pay more than 10% or $1000 and especially if you have — so you can still get a good interest rate. Take the time to compare the prices of auto loans and find financing before you begin shopping for a car. In this way, you’ll know exactly how much you can afford and also how much you’ll need to pay to pay for a substantial down payment. Learn more
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Allison Martin’s writing began more than 10 years ago, as a digital content strategist, and since then she’s been published in various top financial media such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Written 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 gain the confidence to control their finances by providing concise, well-researched and well-written details that cut complicated topics into digestible pieces.
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