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A down payment can work to your advantage when buying a new or used car. Putting down the right amount can reduce your financial burden by lowering your loan amount and monthly payments.
However, a car down payment isn’t one-size-fits-all. While 20% of the vehicle’s value is a common recommendation, it may be too much or too little for certain buyers. Ultimately, your down payment on a car depends on your credit score, savings, loan term and lender requirements.
So, exactly how much should you put down on a car? We’ll answer this important question by calculating the minimum down payment for different circumstances and explaining when paying more could be better.
The minimum recommended down payment for used cars is usually 10% because they don’t lose value as fast as new cars. Since most used cars cost less, a 10% down payment can put a significant dent in the loan amount and reduce your monthly payments.
On the other hand, a 20% down payment is recommended for new cars because they typically lose value quickly — around 10% to 20% in the first year. Paying 20% upfront can help reduce your loan amount and prevent owing more than the car's depreciated value.
Using a $40,000 vehicle as an example, let’s look at how much down payment for a car you might need to pay:
However, these are general down payment recommendations. You can pay more. In fact, making a larger down payment can lower the average car loan rate that lenders offer you. This is because lenders will see you as less risky than if you put down little to no money upfront.
The size of your down payment affects your interest rates, loan terms and monthly payments. A larger down payment could mean better loan conditions and lower long-term costs.
Here’s a breakdown of how much your down payment for a car affects financing:
The minimum percent down payment for a car can be as little as 0% if you meet your lender’s requirements. Qualifying for zero down payment typically requires having a strong credit score (above 720), a stable income and a low debt-to-income ratio.
It’s not impossible to find lenders that offer zero-down financing to bad credit borrowers. But remember that such loans usually come with higher interest rates, stricter loan conditions or the need for a cosigner.
Lenders, in most cases, prefer at least 10% to 20% of your car’s price as a down payment. The exact amount will depend on the lender’s policies, the car type and your credit history. If you have excellent credit, you could qualify for a lower down payment.
No, a down payment isn’t necessary to refinance your car loan. Instead, a lender will look at your credit score, loan balance and payment history to decide what vehicle refinancing terms you qualify for.
However, a lender might require a down payment before refinancing if you have an upside-down loan or a high loan-to-value (LTV) ratio. Both scenarios involve your car’s value being significantly lower than your loan’s value.
Lenders consider such loans risky because the car isn’t worth enough to cover the remaining loan balance. They may ask for a down payment to lower the loan amount and reduce their risk before refinancing.
Even if the lender doesn’t ask for a down payment to refinance, you can make one. Doing so lowers your loan amount, which can decrease interest costs and improve your chances of getting better refinancing terms.
The general recommendation for how much you should put down on a car is 10% for a used car and 20% for a new car. Many lenders allow you to put down less, but if you put down more, it can lower your interest rates and monthly payments. Try using an auto loan calculator to explore different down payment scenarios.
If a large down payment strains your budget or interferes with your financial goals, it might not be the best choice. Consider the pros and cons of different down payment amounts while researching potential lenders.
Here are answers to popular questions about how much your down payment for a car should be.
The recommended down payment is 10% for a used car and 20% for a new car. But you could pay more to lower your loan amount and interest costs. Putting down more could also help you avoid owing more than the car’s worth if it loses value.
A high credit score simplifies qualifying for low or zero down payment options, while bad credit usually requires a higher down payment. Remember, paying nothing upfront means borrowing more, which usually increases your total loan costs.
Yes, a bigger down payment can lower your interest because you’re borrowing less. Lenders will consider you a less risky borrower and be more open to offering lower rates. Qualifying for a lower rate means you can save money by paying less interest over time.
Not necessarily, but a larger down payment shows a seller you’re serious. This can give you some leverage to negotiate a lower price.
The lender or dealership typically receives the down payment to cover part of your selected car’s cost. This reduces how much you need to borrow. Some of the payment may also be used for taxes, fees or add-ons.
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