How Much Money Should You Put Down on a Car?
One of the most common questions is, “how much money should I put down buying a new or used car?”
Car dealers advertise “$0 Money Down” or “No Money Down” to lure car buyers like yourself into dealerships across the nation. So, “Is not putting cash down when buying your next car a good idea?”
Do You Have to Put Money Down on a Car?
The quick answer to this question is, “No, you don’t have to put cash down when buying a new or used car!”
If you have an excellent credit score, long credit history, and can budget for the total amount of the monthly car payments, you will not be required to put any money down when buying a vehicle.
If you have some bumps in your credit history or bad credit, the lender may or may not require a minimum of 10% down or more of the vehicle’s purchase price at the time of buying the car.
Remember that not putting money down when purchasing a vehicle will make you pay more for the car in the long run. Any money borrowed will be subject to interest charges when financing a vehicle through a bank or lender.
If you don’t, at least put enough cash down to cover your tax, title, license, and fees. You will be paying unnecessary interest on it as well.
The golden rule is that the less money you borrow, the less interest you will pay, and the more money you save.
If you want to purchase a vehicle with $0 down, don’t solely rely on a car dealer to arrange auto financing for you. Having a pre-approved vehicle loan in place to determine the type of interest rates you qualify for will protect you from dealer financial scams.
You can leverage your pre-approved auto loan when negotiating finance rates and terms with the dealer. My auto finance tips and advice will help you get a pre-approved car loan online.
Benefits of Putting Money Down When Buying a Car
There are many benefits to putting a large down payment on a car when financing it. These include:
- Lowers the overall amount financed, saving on interest and finance charges.
- Decreases the LTV (Loan to Value), significantly increasing your chances of being approved by a bank or lender.
- It shows your commitment to the lender; with a little “skin in the game,” you’re less likely to default on the car loan.
- You can finance your vehicle for a shorter term and pay it off quicker.
- More money down will lower your overall monthly car payment.
- You will less likely be in an upside-down or negative equity situation.
Car Buying Tip – Always try to pay an extra $10, $25, $50, or more on the principal amount when making your monthly car payment.
This extra money will add up over time and help decrease interest charges over the length of your car loan.
Much Cash Should You Put Towards Your Car Purchase?
The $0 down ads car dealers run everywhere have changed the thinking of the car buying society.
Even though $0 down sounds appealing, it’s a COSTLY mistake! Car dealers and finance companies advertise “$0 money down” because they know it’s appealing to the customer and make more money from interest when you buy a car this way.
Your Cash Down Payment
15-20% of the Purchase Price
Before calculating your down payment, you should determine the dealer’s cost and calculate a fair profit new car offer.
Knowing what price you want to pay for the vehicle will help you estimate how much money you will need for a down payment.
Once you’ve figured how much the vehicle will be, multiply it by 15-20%. Although this is not possible for everyone, you should always aim for at least a 15-20% down payment when buying a car; the more, the better.
Larger down payments will help you avoid high monthly car payments, longer terms, excessive bank finance charges, and being in a negative equity situation when you decide to trade or sell the car in the future.
Although, I don’t personally recommend less than 15-20% down. The absolute minimum amount of cash down you should have available is at least the total of your tax, title, and license fees (TT&L). Paying interest and finance charges on taxes and fees doesn’t make good financial sense. Putting a little money down is always better than putting no money down.
If you have bumps in your credit history, bad credit, or attempting to finance your first car, having a down payment of at least 15-20% or more is attractive to bad credit and first-time lenders.
Taking the time to save up a down payment before buying a new or used car will pay off tenfold when it comes time to trade in your vehicle. By not putting any money down, you’re creating bad car-buying habits that will come back and haunt you in the future.
A sizeable down payment will also increase your chances of qualifying for a low-interest car loan. You can apply for a loan with your bank or credit union, but I suggest using online auto finance lenders for the best interest rates.
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The Vehicle’s Price Determines How Much Cash You Should Put Down
Use the chart below to get an idea of what kind of down payment you should save up before buying the amount of vehicle you’re looking to buy. These down payment amounts are only suggestions:
| Vehicle Price | 15% Down | 20% Down | 25% Down |
|---|---|---|---|
| $6,000 | $900 | $1,200 | $1,500 |
| $8,000 | $1,200 | $1,600 | $2,000 |
| $10,000 | $1,500 | $2,000 | $2,500 |
| $12,000 | $1,800 | $2,400 | $3,000 |
| $14,000 | $2,100 | $2,800 | $3,500 |
| $16,000 | $2,400 | $3,200 | $4,000 |
| $18,000 | $2,700 | $3,600 | $4,500 |
| $20,000 | $3,000 | $4,000 | $5,000 |
| $25,000 | $3,750 | $5,000 | $6,250 |
| $30,000 | $4,500 | $6,000 | $7,500 |
| $35,000 | $5,250 | $7,000 | $8,750 |
| $40,000 | $6,000 | $8,000 | $10,000 |
| $50,000 | $7,500 | $10,000 | $12,500 |
If you know how much money you have to put down and want to know what percentage it would be of the purchase price. Take your down payment amount and divide it by the vehicle’s purchase price.
An example would be if you had a $2,200 down payment saved and you wanted to buy a $14,000 car. You would take $2,200 and divide it by $14,000, giving you a 15.7% down payment.
Putting Money Down Versus Extending the Auto Loan Term
Suppose you want to buy a car and are lacking a down payment. Don’t worry; the car salesman will have a “great idea” and show you how easy it is to lower your payments without any additional money.
Please DO NOT fall for an extended term; car dealers do this by increasing your car loan term, sometimes extending it out by a few years or more.
$0 Down + Extending the Term of the Car Loan = Costly Over Paying!
Extending your loan term lowers your total monthly car payment by spreading your total amount financed over a more extended period.
However, the car salesman is not telling you that, in reality, you’re paying hundreds, if not thousands of dollars more in additional interest and finance charges.
To make their payments manageable, I’ve seen customers finance automobiles for as long as 84 and 96 months with no money down.
These people do whatever it takes so they can drive a particular car they want. I believe that’s crazy! Extending your term out 72, 84, and even 96 months is just asking for trouble.
Suppose you don’t have at least a 15-20% down payment and have to finance over 48 months to fit a car payment within your budget. In that case, you may want to consider a less expensive car, save a larger down payment, or wait until you’re a little more financially stable before purchasing a vehicle.
Let’s experiment for a minute. For this example, we’ll finance a new car we’ve negotiated for $18,000 out the door. No trade-in, no money down, 7% interest rate, and I’ll use a 6% sales tax rate. There may be some minor state-to-state fees or other costs, but I won’t use them for this example.
| Payment over a 3 year auto loan with $0 cash down | ||
|---|---|---|
| $18,000.00 | = | Agreed upon new car purchase price. |
| $1,080.00 | + | 6% sales tax rate. |
| $2,128.86 | + | Interest over a 3 year auto loan at 7% APR. |
| $21,208.86 | = | Total of car loan payments over 3 year term. |
| $589.14/mo | = | Your monthly car loan payment. |
| Payment over a 4 year auto loan with $0 cash down | ||
|---|---|---|
| $18,000.00 | = | Agreed upon new car purchase price. |
| $1,080.00 | + | 6% sales tax rate. |
| $2,850.93 | + | Interest over a 4 year auto loan at 7% APR. |
| $21,930.93 | = | Total of car loan payments over 4 year term. |
| $456.89/mo | = | Your monthly car loan payment. |
| Payment over a 5 year auto loan with $0 cash down | ||
|---|---|---|
| $18,000.00 | = | Agreed upon new car purchase price. |
| $1,080.00 | + | 6% sales tax rate. |
| $3,588.41 | + | Interest over a 5 year auto loan at 7% APR. |
| $22,668.41 | = | Total of car loan payments over 5 year term. |
| $377.81/mo | = | Your monthly car loan payment. |
| Payment over a 3 year auto loan with $20% cash down | ||
|---|---|---|
| $18,000.00 | = | Agreed upon new car purchase price. |
| $1,080.00 | + | 6% sales tax rate. |
| $19,080.00 | = | Subtotal amount financed. |
| $3,600.00 | - | 20% down payment. |
| $15,480.00 | = | Total amount financed. |
| $1,727.19 | + | Interest over a 3 year auto loan at 7% APR. |
| $17,207.19 | = | Total of car loan payments over 3 year term. |
| $477.98/mo | = | Your monthly car loan payment. |
Although your payment will be higher with a shorter term, you’ll save money by only paying $2,128.86 in interest on the 36 months versus $3,588.41 in the 60-month period. That’s a difference of $1,459.55 in your pocket.
If you were to take the term out to 42 or 48 months, your monthly payment would be a little less. However, you will start to increase your interest charges.
This is where many people get in trouble with all the in-your-face advertising about “zero down delivers,” “no money down,” and “no money out of pocket.” It’s okay to buy a vehicle with no money down; it will cost you a lot more in the future.
How a Dealer May Attempt to Steal Your Down Payment
Many people fear putting money down when buying a car because they believe the dealer will steal it from them. As long as you keep track of your down payment money, you will not have a problem.
“Money Down has No Effect on the Sales Price of a New or Used Car.”
It would be best if you did not tell a car salesman you have a down payment until you’ve agreed on the purchase price of the vehicle you want to buy.
If someone asks if you have a down payment, tell them you don’t have the funds available now. The only reason a salesman wants to know if you have cash down is so the sales manager can manipulate the numbers in the dealership’s favor.
Suppose a car salesman only presents you with payments or tries to confuse you using the “four square” technique or another presentation. Tell them the only thing you’re interested in is the lowest price they’ll sell the car for, and you’re not interested in payments or anything else at this time.
Only after you’ve agreed to the vehicle’s purchase price can you tell them you have a down payment. The amount of your down payment should be subtracted from the purchase price after tax, title, license, or any other mandatory fees, as in the example below.
| How to Correctly Deduct Money Down | ||
|---|---|---|
| $18,000.00 | = | Agreed upon new car purchase price. |
| $1,080.00 | + | 6% sales tax rate. |
| $19,080.00 | = | Subtotal amount financed. |
| $3,600.00 | - | 20% down payment. |
| $15,480.00 | = | Total amount financed. |
Some unethical dealers may attempt to steal all or some of your money. They can do this by manipulating the figures associated with your transaction. The example below explains how this simple manipulation can cost you thousands of dollars.
| How dealers steal your down payment. | ||
|---|---|---|
| $20,000.00 | = | Vehicle purchase price. (Artificially raised) |
| $1,200.00 | + | 6% sales tax rate. |
| $21,200.00 | = | Subtotal amount financed. |
| $3,600.00 | - | 20% down payment. |
| $17,600.00 | = | Total amount financed. |
The dealer is stealing $2,000 of your down payment in the example above. All they did was artificially raise the car’s selling price by $2,000, which makes $2,000 of your down payment disappear. This is not the only way a dealer can steal your down payment, but it is the most common way.
Dealers are experts at manipulating the numbers during a car deal. Be aware and always read everything before you sign.
Not only is this nasty dealer tactic used to steal down payment money, but it’s also used to make trade equity, incentives, and customer rebates magically disappear.
You may think this would be easy to catch a dealer attempting to steal your down payment. I’m here to tell you that it happens to people every day, especially if you go into a car dealership unprepared or focused on a monthly payment.
Never Give Cash or Checks to a Car Dealership
Never give a car dealer cash to hold a vehicle or as a deposit. Car salesmen will ask you to provide them with a deposit or cash down to take to the manager to show them you’re a serious car buyer.
Please do not fall for this scam; tell the salesman you’ll give them your money only when you both agree on the car’s price.
If you give cash or a check to the dealer, getting all of your money back can be challenging if the deal goes south or falls through for any reason.
Using a credit card for any financial transactions with a car dealership is best. You can always contest the charges with your credit card company if something goes wrong with the deal.
If a car dealer tells you there is an additional charge or fee for using your credit card. Just ask them, “do you want to sell me the car?”
If they insist on charging you the fee, you can negotiate it, pay it, or thank them for their time and find another dealership that will be more than happy to waive it.
I was never willing to lose a car deal over a credit card fee. It’s the cost of doing business.
About the author
My name is Carlton Wolf, and I’ve been in the car business since 1994, both retail and wholesale. I created the Auto Cheat Sheet to better educate buyers about the deceptive sales practices used by many dealerships throughout the country. Please understand that not all car dealers are dishonest. However, you never know who you’ll be dealing with, though. I’m willing to share my knowledge and experience with anyone who listens. Keep in mind that I’m a car guy, not a writer.
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