How Much should my car down payment be?

Learn how to choose the right car down payment without overthinking it.

Having a large down payment will always benefit you financially when buying a new or used car.

When buying a car, your down payment determines your monthly payments, interest rates, and overall affordability. But how much should your car down payment be? The answer depends on several factors, including your budget, credit score, and long-term financial goals.

In this guide, I’ll explain everything you need to know about car down payments—why they matter, how to calculate the ideal amount, and tips for saving up. Whether you’re purchasing a new or used vehicle, understanding your down payment options can help you make a wise, confident decision.

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 any cash down when buying your next car a good idea?” Read on to find out.

Table of Contents

How Much Should Your Car Down Payment Be?

When purchasing a car, aiming for a down payment of 15-20% of the vehicle’s purchase price is generally recommended. This range is considered optimal because it strikes a good balance between affordability and the benefits of making a substantial initial payment.

Your Ideal Cash Down Payment
15-20% of the Purchase Price

Many individuals struggle to save the suggested down payment due to rising vehicle prices. As of the third quarter of 2024, the average cost of a new car reached $47,542, necessitating a 20% down payment of $9,508. Meanwhile, the price of used vehicles exceeded $27,177, making a 15% down payment of approximately $4,077. These down payments can be made using cash, trade-in values, or a combination.

A substantial down payment enhances your financial stance after the purchase. If these figures seem steep, contribute the maximum you can comfortably afford, ensuring you preserve your savings and emergency reserves.

Nevertheless, many buyers opt for smaller down payments when buying vehicles in today’s market.

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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 and a 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 when buying the car.

Remember, 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 put enough cash down to cover your tax, title, license, and fees. You will also be paying unnecessary interest on it. 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, consider covering your car’s tax, title, license, and related fees upfront. Otherwise, you’ll be adding unnecessary interest to these amounts.

Lastly, don’t let the dealer steer your financing if you aim to clinch that car with $0 down. Protect yourself from dealer finance scams by arranging a pre-approved auto loan first to see what kind of interest rates you will qualify for. You can leverage your pre-approved auto loan when negotiating finance rates and terms with the dealer.

Lastly, don’t let the dealer steer your financing if you want to buy a car with $0 down.

Car prices are high but you can still find a great deal by using an online car buying service to get a free quote.

What is Cash is King?

In the car business, “Cash is King” means having cash on hand, which gives a buyer significant leverage. A larger down payment can lead to better deals, more negotiation power, and sometimes quicker transaction processes. Dealers often prefer cash transactions because they are straightforward and eliminate the complexities and delays associated with financing approvals and checks. This preference can translate into discounts or incentives for cash buyers, as dealerships aim to close deals quickly and reduce administrative burdens.

Benefits of a Higher Down Payment

A larger down payment reduces your monthly payments, boosts your car’s initial equity, and may avoid the need for gap insurance, saving you money and reducing financial risks.

1. Lower Monthly Payments

One of the most immediate benefits of a higher down payment is lower monthly payments. This reduction can significantly ease your monthly financial burden, allowing you to be more flexible in your budget and less strain on your cash flow.

2. Equity Building

Another advantage of making a significant down payment is starting with a higher equity in your vehicle. This equity acts as a financial buffer, reducing the risk of becoming “upside down” on your loan, where you owe more than your car is worth. This position is particularly beneficial if you need to sell the vehicle or if it is totaled in an accident.

3. Avoiding Additional Fees

A substantial down payment can also help you avoid the need for gap insurance. Gap insurance covers the difference between the value of the car and the amount you owe; however, if your down payment is large enough, this may not be necessary, saving you an additional expense.

4. Improved Approval Chances

Increasing your down payment can also improve your chances of loan approval, especially if you have a lower credit score or no credit history. A larger down payment signals to lenders that you’re committed to the purchase and capable of managing significant financial transactions, making them more likely to approve your loan.

5. Better Loan Terms

With a higher down payment, you may also qualify for better loan terms, such as a lower interest rate. Lenders view a larger down payment as less risky, which can translate into more favorable financing conditions for you. This can mean paying less interest over the life of your loan, resulting in additional savings.

The Impact of a Large Down Payment on Loan Terms

A larger down payment reduces the amount you need to borrow, lowering your interest costs and improving your loan terms. It also decreases your loan-to-value ratio, making you a less risky borrower, which can lead to easier loan approvals and access to better financing options.

1. Reducing the Loan Amount

A larger down payment decreases the total amount you need to borrow, which can significantly reduce your financial burden. Lowering the loan amount minimizes the interest accrued over the loan life and enhances your chances of receiving better loan terms from lenders. A reduced loan amount means less risk for the lender and often results in lower interest rates.

2. Improving Loan Approval Odds

Lenders evaluate risk based on the loan-to-value ratio (LTV). A lower LTV ratio, which results from a higher down payment, makes you a less risky borrower. This improved risk profile can lead to easier loan approvals and may even qualify you for premium financing options unavailable to those with higher LTV ratios.

Factors Affecting Your Down Payment

What determines the size of your down payment? It depends on your finances, the type of car you want, and the details of your loan options. Let’s break these down.

1. Personal Financial Situation

First, examine your finances. Are you in a comfortable financial position? Your savings, monthly bills, and other financial obligations will significantly influence how much you can put down.

2. Type of Vehicle

Are you buying a luxury car or a more affordable one? The type of car affects the down payment required. Luxury cars often need a more significant down payment.

3. Loan Terms and Conditions

Each loan is different. Some may offer lower interest rates if you make a larger down payment, while others might be more flexible. Make sure to read all the details carefully.

Find the dealer near you with the lowest new car price.

Pros and Cons of a Large Down Payment

Let’s look at the benefits and drawbacks of a large down payment.

Pros of a Large Down Payment:

Enhanced Financial Flexibility: A more significant down payment leads to smaller monthly payments.
Favorable Interest Rates: Paying more upfront can get you better interest rates.
Swift Ownership: You’ll own your car sooner.
Savings on Interest: Paying a large sum initially reduces the total financed amount, saving you money on interest and fees.
Improved Loan Approval Chances: A lower Loan-to-Value ratio (LTV) improves your profile with lenders, making it easier to get approved.
Demonstrated Commitment: A larger down payment shows you’re serious, which reduces the risk for lenders.
Shorter Loan Tenure: If you pay more initially, you can choose shorter loan terms, which means you’ll finish paying off the loan quickly.
Reduced Monthly Payments: The more you pay upfront, the less you pay each month.
Guard Against Negative Equity: A substantial down payment protects you from owing more than your car is worth in the future.

Potential Downsides:

Strain on Immediate Savings: Paying a lot upfront can reduce your immediate savings.
Lost Investment Opportunities: You could have invested the money used for the down payment for higher returns.
Limited Cash Flow: A sizeable down payment can tie up cash needed for emergencies or other essential expenses.
Reduced Financial Flexibility: Allocating a significant amount of money for a down payment might limit your ability to handle unexpected financial challenges.

Pro Tip: Add an extra $10, $25, $50, or more to the principal amount when you make monthly car payments. This small addition can grow over time, reducing the interest you pay over the life of the loan and speeding up your path to financial freedom.

Step-by-step walkthrough on how to buy a new car | New Car Buying Cheat Sheet

How to Save for a Vehicle Down Payment

Saving for a car down payment doesn’t have to feel overwhelming. You can quickly accumulate the funds you need with a clear plan and innovative strategies.

Here are some practical tips to help you save faster:

Set a Savings Goal: Determine how much you need to save based on your desired car and stick to it.
Create a Budget: Track your income and expenses to find areas to cut back.
Open a Dedicated Savings Account: Keep your car savings separate to avoid dipping into it for other expenses.
Automate Savings: Set up automatic transfers to your account each payday to make saving effortless.
Reduce Non-Essential Spending: Cut down on dining out, subscriptions, or other extras to free up cash.
Sell Unused Items: Declutter your home and sell items you no longer need to add to your savings.
Take on a Side Hustle: To boost your income, consider freelancing, driving for a rideshare service, or working for other gigs.
Avoid New Debt: Focus on saving instead of taking on new loans or credit card payments that can slow you down.

By following these steps, you’ll be well on your way to reaching your car down payment goal quickly and enjoying the car of your dreams!

What About the $0 Down Dealer Ads?

Car advertisements touting “$0 down” offers have significantly shifted the mindset of modern car buyers. While these zero-down deals can be tempting, they often come at a hidden price.

Dealerships and financiers promote such offers because they attract customers and rake in more via interest.

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 additional money will add up over time and help decrease interest charges over the length of your car loan.

Before settling on a down payment amount, it’s essential to determine the actual new car cost to the dealer and formulate a reasonable profit-based offer for the new car. This understanding will give you a clearer perspective on the desired down payment.

Typically, setting aside 15-20% of the car’s price for the down payment is advised. This might be a stretch for some, but aiming for this range is beneficial.

A heftier down payment means you sidestep burdensome monthly payments, extended loan terms, and steep finance charges.

Plus, it safeguards you from the dreaded negative equity scenario when you decide to sell or trade-in later.

While the 15-20% mark is ideal, it’s essential not to dip below the total of your tax, title, and license fees (TT&L). Financing these fees will lead to avoidable interest charges. Even a modest down payment is preferable to none.

For those with credit hitches or first-time buyers, having a down payment in the ballpark of 15-20% can boost your appeal in the eyes of lenders catering to lousy credit or first-timers.

Saving up for a down payment before taking the car-buying plunge ensures better trade-in value in the future. Skimping on the initial payment can lead to detrimental purchasing habits that may come back to bite.

Moreover, a significant down payment can increase your chances of snagging a low-interest auto loan. While banks and credit unions are viable options, exploring online auto finance lenders might get you the most competitive interest rates.

See what your vehicle is worth before contacting a car dealership.

How the Price of Your Vehicle Influences Your Down Payment

Look at the chart below to find out the ideal down payment for the price of the car you want to buy.

Remember, these numbers are just guidelines to help you plan your savings:

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

To see what percentage of the car’s price your down payment covers, divide your down payment by the total cost of the vehicle.

For example, if you have saved $2,200 and want to buy a $14,000 car, dividing $2,200 by $14,000 gives you a down payment of 15.7%.

Beware: How Dealers Might Play Tricks with Your Down Payment

It’s not uncommon for potential car buyers to be wary of making a down payment, fearing the dealership might have ulterior motives.

But with diligent tracking of your funds, you’ll be in safe territory.

Money Down vs. Increasing the Auto Loan Term

Are you considering buying a car but don’t have enough for the down payment? The salesperson might offer a great solution: lower monthly payments with no down payment.

Use caution with this tempting offer! The real trick is to extend your loan term. Dealers might suggest increasing the length of your loan by several years.

$0 Down + Lengthier Loan Term = Overpaying Big Time!

Sure, prolonging the loan period minimizes your monthly payments by spreading the total amount over a more extended span. But here’s the catch: you’ll end up shelling out significantly more in interest and additional financial charges, a detail often glossed over by eager salespersons.

I’ve witnessed customers finance cars for staggering periods like 84 or 96 months, all without a down payment. Their goal? Driving off with their dream car, irrespective of the financial ramifications. Such stretched terms, like 72 or 96 months, can lead to financial pitfalls.

If you can’t make a down payment of at least 15-20% and need more than 48 months to afford the monthly payments, it’s time to think again. You might want to look for a cheaper car, save up a larger down payment, or wait to buy until your finances are more secure.

For illustrative purposes, let’s crunch some numbers. Imagine you’re financing a new car you’ve negotiated to $18,000. What does the picture look like with no trade-in, zero down payment, a 7% interest rate, and a 6% sales tax rate? We’ll skip any minor state-specific fees for this scenario.

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.

Opting for a shorter loan term might mean steeper monthly payments, but the savings are tangible. With a 36-month term, you’d be spending just $2,128.86 on interest, compared to a whopping $3,588.41 over 60 months. That’s a tidy sum of $1,459.55 saved!

Extending your term to 42 or 48 months might ease your monthly outflow, but the accruing interest begins to surge. This is where the allure of ads screaming “zero down offers” or “buy now, pay nothing” can derail sound financial decisions. While a zero down payment might seem tempting, it usually comes at a premium in the long run.

“Your Down Payment Doesn’t Influence the Sale Price of a Car.”

When to Reveal Your Cash Down Intentions

Hold off on revealing your down payment intentions until the purchase price of the desired vehicle is settled. If probed about it beforehand, it’s wise to state that you’re currently short on funds. Why, you ask? Dealerships aim to gauge any upfront payment to skew the numbers in their favor potentially.

Stay focused if a car sales rep mainly discusses monthly payments or uses convoluted techniques like the “four square” method. Your priority should be to establish the rock-bottom price they’re willing to part with the car for. Bring in the topic of down payments only after settling on the vehicle’s price.

Post all relevant fees (tax, title, license, etc.); the down payment should be subtracted from the settled price. Here’s a breakdown:

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.

The Disappearing Down Payment

While most dealers are ethical, a few might try tactics to whisk away a chunk of your down payment. One prevalent method is by “tweaking” the numbers. The illustration below showcases how this seemingly simple adjustment can burden your wallet:

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.

In the depicted scenario, the dealer discreetly bumps the car’s price tag by $2,000, removing your down payment. Though this is a standard ploy, it’s not the sole one.

Having mastery over number crunching, some unethical dealers may attempt to exploit your down payment, trade equity, or even rebates. It might seem like you’d easily catch such discrepancies, but many buyers fall prey to these tactics, especially when fixated on monthly payments or unprepared.

Stay vigilant and scrutinize every document before signing. Knowledge is power, and being prepared can save you from such pitfalls.

Avoid Paying with Cash or Checks at Car Dealerships

Never hand over cash or a check to a car dealer as a deposit or to hold a vehicle. Car salespeople might ask for a deposit or down payment to show the manager you’re serious about buying. Don’t fall for this tactic; only pay when you and the dealer have agreed on the car’s price.

If you pay with cash or a check, getting your money back can be very difficult if the deal doesn’t work out.

Using a credit card for payments at a car dealership is safer. If the deal isn’t perfect, you can dispute the charges with your credit card company.

If a car dealer charges extra for using a credit card, ask them if they want to sell you the car. You can try to negotiate the fee, decide to pay it, or leave and find another dealer who won’t charge it.

In my dealerships, we never let a credit card fee prevent me from selling a car. It’s just part of doing business.

FAQs About Down Payments

How much is the average down payment on a car?

Lenders and financial experts typically recommend 15-20% of the car’s price with an absolute minimum of 10%.

Is zero down payment offers a scam?

Not necessarily, but always be wary of the terms associated with such offers and calculate the additional interest you may end up paying over the life of the loan.

Does a down payment affect interest rates?

Often, yes. A significant down payment shows commitment to the lender and can secure better interest rates.

Can I use a trade-in as a down payment?

Certainly! Many dealerships accept trade-ins as a form of down payment.

How does my credit score influence the down payment?

Your credit score is pivotal in determining the down payment requirement when purchasing a vehicle. A higher credit score typically signifies a good credit history and responsible financial behavior, making lenders more confident in your ability to repay the loan. As a result, if you have a strong credit score, you might qualify for favorable loan terms and even lower down payment requirements. Conversely, lenders might perceive you as a higher risk if your credit score is lower. They could ask for a larger down payment to offset this risk to secure the loan. A good credit score can give you more flexibility and negotiating power regarding down payment amounts. In contrast, a lower score might necessitate a heftier initial payment to approve the financing.

Final Thoughts About Calculating a Down Payment

Finding the correct down payment for your car involves balancing your budget, the car model you want, and your financing options. It’s essential to make this choice wisely. While driving off the dealership lot with a new, expensive car and a small initial payment might be tempting, remember the long-term picture.

Staying financially stable and making an intelligent, down payment is more valuable than the brief thrill of a quick buy. Plan your car purchase carefully and let your financial health guide you.

After all, the real joy comes from getting the car and ensuring its ownership doesn’t strain your finances.

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 many dealerships use nationwide. 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.