How Much Should a Car Down Payment Be? [Guide for 2024] (2024)

Are you thinking about taking the big step of buying a new car but are apprehensive as to how to go about it? Will you have enough money for a down payment and to make monthly payments? Just how much should a car down payment be? Although it might seem complicated at first, it’s quite simple when you consider how a down payment works.

In this guide, we’ll address the pros and cons and FAQs of down payment, and how much an average down payment should be.

What Is a Car Down Payment?

First, consider the question: What is a down payment? A down payment is an initial, partial payment applied to a purchase that is financed by the purchaser. In some cases, a down payment might require taking out an auto loan, depending on whether you want to finance a new car or a used car, as their prices significantly vary.

The Ideal Car Payment Percentage and Associated Features

If taking out an auto loan is required for you to make a car down payment, there are a few things to consider, such as the average down payment on a used car or a down payment on a new car. Percentage rates, car value, and associated fees also need to be considered when deciding on a used car or new car down payment.

Down Payment Percentages for New and Used Cars

Why Is Paying a Larger Down Payment Better?

Again, how much should you put down on a car in order to get the best deal? Simply put, the higher the down payment, the lower the monthly payment, as well as a better interest rate. Making a larger down payment is better, overall, because:

You’ll be closer to paying the real price of the car

The depreciation of a car’s value when it leaves the lot is something to consider. And the car’s cost actually increases through interest fees, insurance, and other fees. It’s smarter to make a larger down payment and pay off your loan in a shorter amount of time.

Your insurance may cover the full amount if your car is wrecked or totaled

Alternatively, you’ll need to pay out-of-pocket or obtain Gap insurance.

You’ll have lower monthly payments

Due to a larger down payment. In comparison to a minimum down payment for a car—stretched out for the same time period—you’ll pay significantly less on a monthly basis.

A larger down payment means a shorter loan term

With a larger payment, you can choose a 48-month term rather than a 60-month one. A shorter loan term equals less time spent paying off debt.

You’ll have more opportunities for loan approval

The larger the down payment, the more likely you are to successfully obtain a car loan. This communicates to the bank that you are committed to paying the loan back. Research has shown that people who are willing to make that initial investment are less likely to mismanage their money.

You pay a lower interest rate

Due to the larger down payment and shorter loan term, you’ll pay less in interest charges over the course of the loan.

You avoid an upside-down situation

Remember, zero down payment—as opposed to a large down payment—means you’ll be underwater the moment you sign the paperwork. A $0 down payment car loan is when the bank offers to pay the entire cost (100%) of your car, not requiring you to pay anything upfront.

Downsides of Paying a Larger Down Payment

Again, is it better to make a large down payment on a car? Although there are advantages to a larger down payment, consider these disadvantages:

A strain on your savings

One challenge that many faces are the lack of enough money saved for a large down payment on a car. In such situations, it’s important to reconsider all options and calculate whether making a large down payment is the right move.

What if you urgently need a vehicle?

With today’s living standards, a car is a great asset, even a commodity. But many potential buyers don’t have the money to make a large down payment, which would potentially require months of saving.

How much should a car down payment be with regards to the interest rate of a car?

In most cases, your down payment won’t actually lower your interest rate. This is largely related to the state of your credit score, which, if poor, then you might want to consider finding ways to fix it first and then think about taking out an auto loan.

How to Afford a Larger Car Down Payment?

After asking yourself how much should a car down payment be in order for you to get the best deal, you decide that a larger car down payment is the smarter way to go. But you think that you’re not yet financially stable enough to make a large down payment. What then? Note some helpful suggestions that could ultimately help you make a larger down payment:

Save

Reconsider big purchases, start budget planning, and set monthly goals. Consider ways to save up for a car down payment by making cutbacks in your budget. If this is difficult, consider searching online for the well-rated personal loans available.

Trading in your old vehicle

For a new or used car can reduce your down payment.

Build or fix your credit score

By paying all bills on time, paying off debt, and keeping balances low on your credit cards. In addition, avoid closing unused credit cards. (Owing the same amount but having fewer open accounts may lower your credit score.) Consequently, you’ll have a better opportunity for taking out loans for the car down payments. You can also go online and check out the best credit repair companies available.

Lease a car

This is a good financial move that usually helps build your credit score because your payments are reported like auto loan payments.

Buying an affordable car

And even this might be your best option. You may have your mindset on your dream car, but financial accountability tells you to settle on an affordable car. In fact, the smartest investment for such a significant purchase at this point in your life would be to buy a car that is affordable. This also means that a standard down payment on a car would be a lot cheaper.

Conclusion

How much should you put down on a car? It really depends on your financial stability. Questions we’ve already considered may help you decide how much to put down on a car:

• Does your auto loan cover a down payment for a new car, or should you opt for a used car?
• How will the depreciation of the car’s value affect your overall loan term and will it put you in a possible upside-down situation?
• Are you able to carefully weigh the pros and cons of making a large down payment?
• Are you able to lower your expectations when it comes to buying your dream car?