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. Your credit scores may impact the size of your required down payment. Higher credit scores may reduce a lender's down payment requirements.
How much should I use for a down payment on 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.
What's a good down payment on a $30,000 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.
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.
Is it worth it to put a big down payment on a car? ›
Putting down a larger down payment will increase your equity because you won't need to finance as much through a lender. Cars are a depreciating asset. As the value of your vehicle decreases, you're more likely to go upside down on your loan — when you owe more than your car is worth.
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.
How much would a car payment be for a $30000 car? ›
A $30,000 auto loan balance with an average interest rate of 5.0% paid over a 6 year term will have a monthly payment of $483.
What credit score do you need to buy a $30,000 car? ›
What minimum credit score is needed to buy a car? There isn't one specific score that's required to buy a car because lenders have different standards. However, the vast majority of borrowers have scores of 661 or higher.
What is a good credit score to buy a car with no down payment? ›
Boost Your Credit Score
Your credit score is crucial to determine your eligibility for a no down payment car loan. Most lenders require a FICO credit score of at least 680 before you can qualify. If your credit score falls below 680, improve your credit score before you apply to help you qualify in the future.
Down payments are often required on auto loans, especially with less-than-perfect credit. If you apply for a car loan from a subprime lender signed up with a special finance dealership, you can expect to need an average down payment on a car of at least $1,000 or 10% of the vehicle's selling price.
Is 500 too much for a car payment? ›
How much should you spend on a car? Whether you're taking out an auto loan or a personal loan to pay for your car, it's a good idea to limit your car payments to between 10% and 15% of your take-home pay. If you take home $4,000 per month, you'd want your car payment to be no more than $400 to $600.
What is the average down payment for a $20000 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.
How low is too low for a down payment? ›
Some lenders require a 5 percent minimum. Keep in mind, too, that to avoid PMI, you'll need to put down at least 20 percent. If you can't afford that high of a down payment, though, know you won't pay PMI forever.
Is $5000 a good down payment on a car? ›
How much should you put down on a car? A down payment between 10 to 20 percent of the vehicle price is the general recommendation. But if you can afford a larger down payment, you can save even more money on interest payments over the life of the loan.
What is considered a large down payment on a car? ›
It's good practice to make a down payment of at least 20% on a new car (10% for used). A larger down payment can also help you nab a better interest rate. But how much a down payment should be for a car isn't black and white. If you can't afford 10% or 20%, the best down payment is the one you can afford.
Is $10,000 a good down payment on a car? ›
It's good practice to make a down payment of at least 20% on a new car (10% for used). A larger down payment can also help you nab a better interest rate. But how much a down payment should be for a car isn't black and white. If you can't afford 10% or 20%, the best down payment is the one you can afford.
What's a good down payment on a 20k car? ›
A down payment between 10 to 20 percent of the vehicle price is the general recommendation. But if you can afford a larger down payment, you can save even more money on interest payments over the life of the loan.
Is 500 enough for a downpayment on a car? ›
Realistically, if you have decent credit, it's not unheard of to make a $500 down payment. If you're dealing with bad credit, however, you should expect to put down more. At the same time, only a lender can truly tell you how big or small of a down payment you'll need.
Is 40% down payment on a car good? ›
A rule of thumb for down payments on new car loans is 20% of the purchase price, which helps you avoid owing more on the loan than the car is worth. It's best to put as little money down as possible when leasing a car.
