In this article:
- Recommended 20% for new and 10% for used cars
- Using a trade-in for a down payment
- Even smaller down payments still offer advantages
When shopping for a new vehicle, in addition to price, year, model, mileage and other details, an important financing element to keep in mind is a down payment. If you’ve ever asked yourself, “How much should I put down on a car?” then you’re not alone.
According to auto and financial industry experts, the standard recommended amount is 20% of the sales price for a new car, or at least 10% of the sales price if you’re buying a preowned vehicle.
Depending on how much money you can put down, the amount impacts the overall financing and monthly amount you’ll pay for your auto loan. Not to mention your chance for loan approval and the particular Annual Percentage Rate (APR) available.
For first-time car buyers, putting money down on a car can help prove creditworthiness because, to a lender, cash indicates that you’re serious about buying a vehicle and committed to making the payments.
What is the typical down payment on a car?
Kelley Blue Book supports the idea that the average down payment on a car should fall around 20% of a vehicle’s total price. Other financial news sources, such as CNBC and NerdWallet, agree with this amount as a good percentage to shoot for when car buying.
New cars
For new cars, it’s understood that depreciation – the decrease in a car’s value over time – begins when a vehicle is driven off the lot. A new car typically depreciates by 20% to 30% in its first year and continues to decline in value as the years go by. Therefore, putting down 20% (or more) can help offset the car’s value due to depreciation, and often offer lower monthly payments, giving you some peace of mind after your purchase. As far as equity in your vehicle goes, making a larger down payment can help you fight off that depreciation and put you in a better position when you sell or trade your vehicle in.
Used cars
Since used cars have already gone through the initial depreciation phase, depending on year, mileage, condition and other factors, the cost to finance could be lower than new. Putting down less on a preowned vehicle, say 10%, might be enough to have a manageable monthly payment based on your budget. Keep in mind the bigger the down payment you can afford to make, could help improve your financing options.
Benefits of a large down payment
Average down payment of a car at 20% or 10% aside, if you can afford to put down more on a vehicle upfront, it could benefit you and the overall life of your loan.
Lower monthly payments
More money down could equate to a lower monthly payment as the overall amount you are financing would be less. Using our handy auto finance calculator,* you can see how much different down payments could impact your overall loan. For example, say you have your eyes on a car that costs $30,000 and get approved for the full amount at 10% APR, over 60 months. The monthly payment would be around $637. With a 20% down payment of $6,000, however, that monthly payment drops to $510.
Less interest
The more you put down up front can reduce the amount you have to borrow, and in turn, could also reduce the amount of interest you have to pay over the life of the loan.
How your credit score impacts your down payment
You’re probably aware that your credit score plays a part in your ability to get auto financing. Typically, the higher the credit score, the more favorable the interest rate and loan amount. If you have a lower credit score, lenders may request a larger down payment to offset the risk of the loan being paid back.
Using your trade-in for a down payment
If you don’t have extra cash to put down on a new car, but you do have a car to trade in, that can be a big help in getting financing. Even a trade-in worth, say $3,000, put down on a $30,000 vehicle can have you in better shape with a loan than not putting anything down at all. As our article on understanding the differences between APR and interest rates for auto loans states, “Any money you can put down, including the value of a trade-in, will reduce the amount you need to borrow and, in turn, lower the risk for a lender.”
Going into the car shopping process with the mindset of finding something that works with your budget can help set you up for the financial road ahead. And planning what you may be able to put down upfront is a big part of that decision.
*The referenced calculator is meant for educational and illustrative purposes only. The calculator estimates amounts solely based on the information you provide. We do not guarantee the availability of the illustrated terms or your eligibility for any product referenced. The estimated amounts generated from the calculator do not constitute a finance offer.
