Benefits of making a down payment on a car Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by offering you interactive tools and financial calculators that provide authentic and impartial content by allowing you to conduct research and compare information for free – so that you can make financial decisions with confidence. 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 offers that appear on this site come from companies that pay us. This compensation can affect the way and where products appear on this website, for example, for example, the order 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 products for home loans. This compensation, however, does have no impact on the information we publish, or the reviews appear on this website. We do not cover the vast array of companies or financial offers that may be accessible to you. DjelicS/Getty Images
4 minutes read. Published September 21, 2022
Written by Allison Martin Allison Martin Written by Allison Martin’s work started over 10 years prior to that as a digital content strategist. She’s been featured in a variety of top financial media outlets, 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 the end of 2021. They are passionate about helping readers gain confidence to manage their finances with clear, well-researched facts that break down complicated subjects into digestible pieces. The Bankrate promise
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Experts recommend a down payment of at least 20 percent when buying an automobile that is brand new, or 10 percent if you’re buying used. It doesn’t hurt to put down more to save money on interest, but only if you have the money to.
5 advantages to making a down payments are often necessary — lenders typically require at least 10% down. Even if it’s not required, it is nonetheless worthwhile. After all, it can help you save money every month and help you pay less interest. 1. Lower monthly payment Because putting money down lowers the total amount you have to pay, you are likely to pay less each month, which results in lower monthly payments. It’s simple to understand the math. You can use an app to estimate monthly payments. If you borrow $30,000 at 5 percent interest over 48 months, you’ll have to pay $691 a month. With a 20 percent down payment in the amount of $6000, you’ll lower the amount you need to borrow to just $24,000. This will result in the monthly installment of $553. 2. The equity you earn when you start is the amount of equity you own for a vehicle and its potential sale price. The larger down payment will boost your equity since you don’t have to finance as much by a lender. Cars are a . If you’re vehicle declines, you’re more likely to be upside down on your loan — when you have more debt than the value of your car. A higher down payment will protect against depreciation since it acts as buffer. Because you own a larger part of your vehicle from the start by making a larger down payment, you’re less likely to be with an loan that costs more than what you can sell the car. 3. A lower interest rate The most significant benefit of a large cash downpayment is it reduces the amount you must take out. If you’re borrowing less you are paying less. A greater amount of money in your pocket — and less in the bank’s pocket -is always a positive thing. Just like with the monthly payment example 20 percent down payment could make a significant difference in the cost on an auto loan. If you are able to borrow $30,000 with a 5 percent interest rate for two years, then you’ll have to pay $3,162 in interest. With a $6,000 down payment and a loan of $2,530, you’ll pay only $2,530 over the duration of the loan. 4. Possibly lower rates Some lenders could be willing to offer the opportunity to get a loan if you’ve made a significant down payment. Since a down payment indicates you have the ability to manage money it will make you less of a risk for the lender. There are numerous factors that influence your interest rate, like credit score and income, and it’s far from guaranteed. Still, a large amount of downpayment is one lenders will consider and could assist in overcoming areas you might not be as confident in. 5. Better acceptance rate If you have excellent or great credit, not putting any money down may not be a major issue. A lower credit score means you’ll be charged a higher rate or, even worse you’ll be denied the loan. But if you’re able to put down a down payment you may increase your approval odds or persuade the lender to offer you better terms on financing. The experts recommend that you put down at least 20 percent The most popular recommendation is to put down at least 20 percent in the vehicle. Of course, more is preferable. The less you need to finance the more you can afford. But it is an enormous amount of money. In 2022 the average new car cost topped slightly over $40,000 in the month of June 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 equates up to $5,600 for a percent deposit. These are averages, therefore you’ll be able to find more expensive options. Be aware that prices are likely to increase due to global shortages on important parts like semiconductors. You certainly don’t want to drain your savings to pay for a downpayment. Benefit from rebates when you are looking to purchase a brand new vehicle or used, and look around to find a . Selling it or trading it into a dealer can go a long way towards getting to that coveted 20 percent threshold. If you are unable to afford 20 percent, you’re allowed to put down as little 10. Some dealers that work with may only require a $1,000 down payment. Whatever the case, make sure to deposit as much as you can to avoid taking out a large loan which could put you with a huge debt. Avoid putting nothing down You must always make an amount of money to pay down when purchasing an automobile. Some experts believe it may not be required when you’re able to get a good credit score — but most people won’t qualify for that. Dealers will offer financing with no down payment because they stand to make the most interest. In the end, it’s the exact opposite of a substantial down amount. Even at low rates, you’ll wind up needing to finance more. That’s more interest to pay and a higher chance of becoming . Zero-down offers may include a way to cover the higher monthly costs. This is the biggest drawback. The longer the loan duration is, the more you have to have to pay the lender. The next steps: The more you are able to pay in advance to the lender, the better off you’ll be. A down payment of 20 percent is the go-to amount however you can put down more depending on your budget. Be sure to not pay more than 10% or $1,000 — especially when you’ve got it — so you can still get a good interest rate. Take the time to compare automobile loans and look for financing before you begin your car shopping. This way, you’ll know precisely how much you are able to afford and how much you’ll need to pay to make a big down amount. Learn more
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Allison Martin’s writing began over 10 years ago when she was a digital content strategist, and she’s since been published in various top financial media, including 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 from late 2021. They are passionate about helping readers feel confident to take control of their finances by providing concise, well-researched and well-written facts that break down otherwise complex topics into manageable bites.
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