Benefits of making a down payment on a car Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by offering you interactive financial calculators and tools as well as publishing authentic and impartial content by allowing you to conduct research and compare information at no cost to help you make sound financial decisions. Bankrate has partnerships with issuers including, but not restricted 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 could affect how and where products appear on this website, for example, for example, the sequence in which they appear within the listing categories and other categories, unless prohibited by law. Our mortgage, home equity and other home lending products. This compensation, however, does not influence the information we publish, or the reviews you read on this site. We do not cover the vast array of companies or financial offerings that could be open to you. DjelicS/Getty Images
4 min read published September 21, 2022
Written by Allison Martin Written by Allison Martin's work started over 10 years ago as a digital content strategist. She's been published in several leading 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 confidence to control their finances through providing clear, well-researched information that breaks down complicated topics into bite-sized pieces. The Bankrate promises
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Experts recommend a downpayment of at least 20 percent when buying an automobile that is brand new and 10 percent if you're purchasing a used. It doesn't hurt to make a bigger deposit to save money on interest, but only if you can afford to.
5 advantages of making a down payments are usually a necessity -- lenders frequently want at least 10% down. Even if it's not required, it is nonetheless worth it. It will save you money each month and help you pay less interest. 1. Lower monthly payment Because putting money down lowers the total amount you have to borrow, you can expect to pay less every month, which translates into you pay less monthly. It's simple to understand the mathematics. Use an to estimate monthly installments. If you take out $30,000 with 5 percent interest over up to 48 month, you'll pay $691 a month. If you make a 20% down payment that's $6,000 you'll cut the amount you'll need to borrow to only $24,000. And that results in an average monthly payment of $553. 2. The equity you earn when you start is the difference between the amount you have for a vehicle and its potential sale price. A large down payment can improve your equity as you won't require financing the same amount by a lender. Cars are an investment . As values of the car decreases, you're more likely to go upside-down on your loan which means you are owed more than what the value of your car. A greater down payment guards against depreciation as the equity acts as buffer. Since you own a greater part of your car from the start with a greater down payment, you are less likely to end up with an loan which is more expensive than what you could sell the car. 3. Lower interest costs The main advantage of a substantial down payment is that it reduces the amount you need to borrow. If you are able to borrow less, you have to pay less in interest. More money in your pocket and less of the lender's pockets -it's always a good thing. Like the example of a monthly payment that a 20% down payment could make a significant difference in the price for an automobile loan. If you take out $30,000 at a 5 percent interest rate over the course of 48 months, you'll pay $3,162 in interest. With a $6,000 down payment that's only $2,530 over the duration of the loan. 4. Possibly lower rates Some lenders could be willing to offer an offer if you've got an impressive down payment. Since a down payment indicates you know how to handle money it will make you less of a risk for the lender. There are numerous factors that influence your interest rate, like your credit score and income, so this is far from guaranteed. However, a substantial amount of downpayment is one that lenders look at and could help make up for areas that you may not be so strong in. 5. Better acceptance rate If you have excellent or good credit, not having to put money down could not be a major issue. However, a lower credit score can mean that you'll be charged a higher rate or, even worse, be turned down for an loan. However, if you're able make a down payment, you may increase your odds of getting approved or get the lender to offer you better terms on financing. The experts recommend that you put at least 20 percent of the cost. The most popular recommendation is to put down 20 percent or more in a vehicle. Of course, more is better. The less you have to finance the more you can afford. However, it's a lot of money. In 2022, the average new car price was slightly over $48,000 in June, according to Kelley Blue Book (KBB). A 20 percent down payment on that is equal to $9,600. Even used vehicles averaged to -- that amounts to $5,600 with a 20 percent deposit. These are averages, therefore you'll definitely be able to find more costly options. But be aware that prices will continue to rise due to the global shortage of essential parts like semiconductors. You don't want to deplete your savings for a down payment. Take advantage of rebates when you are looking to purchase a new car or used, and look around for . Selling or trading it at a dealership can go a long way to getting you at that coveted 20 percent mark. If you are unable to afford 20 percent, you're allowed to pay as little as 10 percent. Some dealers that work with could only require a $1000 down payment. However, you should ensure that you put down the most you can in order to avoid taking out a big loan which could put you upside down. Don't put any money down. must always make a down payment when buying cars. Some experts believe it may not be necessary when you're able to get a good credit score however the majority of people will not be able to qualify for that. Dealers offer zero-down financing because they are able to earn the most in interest. It is, after all, an alternative to a huge down amount. With low interest rates, you will wind in needing to finance more. That means more interest paid and a greater chance of becoming . A zero-down deal could also be accompanied by a plan to help offset the cost of monthly payments. This is the biggest trap. The longer your loan period will be, the more money you'll have to must pay the lender. Next steps The more you are able to pay in advance and the more secure you will be. A 20% down payment is the go-to amount, but you can always pay more depending on your budget. Be sure to not pay under 10 percent, or $1000 -- especially when you've got it -- so you can still secure a competitive interest rate. It is important to research the prices of auto loans and locate financing prior to you start car shopping. This way, you will know precisely how much you can afford and how much you'll need to pay to make a big down cost. Find out more
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Allison Martin's work 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. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping their readers feel confident to take control of their finances with precise, well-studied information that breaks down otherwise complicated topics into digestible pieces.
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