How Much Is a Down Payment on a Car?

What's a Good Down Payment on a Car?

A good down payment on a car is typically at least 10% to 20% of the car's price. That said, there's no one-size-fits-all answer for how much you should put down.

Many experts suggest putting at least 20% down on a new car. Among other benefits, a 20% down payment makes it less likely that you'll end up underwater on your car loan. In other words, a higher down payment means you're less likely to end up owing more on your auto loan than your car is worth.

If you're planning to buy a used car, you may be able to put as little as 10% down. The value of a used car has already depreciated quite a bit, so you won't see the extreme decrease in value in the first year that you might with a new car.

Whether you're buying used or new, a larger down payment could lead to better loan terms, such as a lower interest rate.

Learn more: How Much Car Can I Afford?

How Much Should I Put Down if I Have Low Credit?

If you have a low credit score, it can be beneficial to try to make a large down payment. A lender may require you to put at least 10% down to qualify with poor credit, but it's a good idea to aim for more.

A larger down payment reduces the size of the loan you'll need to cover the cost of the car. That, in turn, brings down the lender's risk, which may make it easier for you to get approved.

On top of that, putting more down may help you qualify for a lower interest rate. That's especially important if you have low credit, because you'll otherwise typically pay higher rates to finance a car.

Learn more: How to Get Approved for a Car Loan

Using Your Trade-In Toward Your Down Payment

If you have positive equity in your car, you could consider trading it in toward a down payment on a new car. If you're considering this option, you can start by checking the trade-in value of your car for an idea of how much you may have to work with.

In some cases, your car's trade-in value may be more than enough to cover a 20% down payment on a new car. For example, if you're considering buying a new car for $45,000 and your car's trade-in value is $20,000, you could use the trade-in to put almost 45% down.

On the other hand, if your car's trade-in value is less than 20% of the purchase price of the new vehicle you want, you may want to consider bringing some cash to the table to bring your total down payment up.

Before trading in at the dealership, however, be aware that you're likely to get more for your vehicle with a private-party sale. Dealerships buy cars to resell them, and typically offer less than the vehicle's market value so they can make profit on their sale.

Learn more: When Should You Trade In Your Car?

See How Your Loan Stacks Up

Putting more toward a down payment will bring down your total loan amount, and it may also help you qualify for a lower interest rate. Both of those benefits mean you can lower your monthly payments with a larger down payment.

Reference the table below to see how your loan payments may compare to national averages.

Source: Experian, data as of Q2 2024; VantageScore^® 4.0 used

The Benefits of a Larger Down Payment

How much you put down when you buy a car matters because a larger down payment makes your loan cheaper overall and on a monthly basis. Reasons to make a larger down payment include:

• Lower monthly payments: When you make a larger down payment, the size of your loan will be smaller. Compared with a loan with the same terms but a smaller down payment, your monthly payments will be lower.
• Shorter loan term: A larger down payment could remove the temptation to stretch out your loan over a longer period in an effort to reduce monthly costs. For instance, with a larger down payment, you might pick a 48-month term rather than a 60-month term. A shorter term means you won't have the debt for as long, and a larger down payment can keep your monthly payment down.
• Less interest: With a larger down payment and shorter loan term, you'll pay less in interest charges over the life of the loan.

Does How Much I Put Down Affect Car Insurance?

While your down payment doesn't directly impact your insurance rate, there can be indirect impacts.

If your car is totaled or stolen, your auto insurance policy will cover only the depreciated market value of your car when you have actual cash value coverage. Optional replacement cost coverage typically would pay you more money for a totaled or stolen car.

With actual cash value coverage, you'd be on the hook for paying off the remaining balance on the auto loan. A larger down payment means you'll build equity faster, which makes it less likely that you'd end up in negative equity. On the other hand, gap insurance can also cover the difference.

Learn more: How Having an Auto Loan Impacts Your Insurance Rate

See How Your Down Payment Affects Your Monthly Payments

You can use the car payment calculator to get a sense of what monthly payment may be based on how much you have available for a down payment, the vehicle's cost and your expected interest rate.

To use the calculator, start by taking the total price of the car you're considering. Then, subtract how much you expect to put toward a down payment. For instance, if you're considering a $40,000 car and want to put 20% down ($8,000), you would enter a loan amount of $32,000 (or $40,000 - $8,000).

Try inputting different loan amounts to explore how your down payment impacts the total cost of your loan as well as your monthly payments.

How to Save for a Down Payment

You can take many approaches to saving up for a down payment. Here are four of them:

1. Create a budget. Establishing a spending plan gives you a better handle on your income and spending, and gives you a better idea of where you can carve out money for a down payment.
2. Set a goal. Let's say you want to make a down payment of $2,500. If you map out a strategy for what you'll need to do and how long it'll take to get there, it'll be easier to reach the $2,500 goal line. If you can set aside $200 a month, it'll take a little more than a year to save up enough for your down payment, so either plan your vehicle purchase around that or try to accelerate your saving if you can't wait that long.
3. Cut spending. Dialing back on big purchases, dropping unused memberships and trimming your clothing budget are among the ways you can decrease spending and increase the amount of money to set aside for a down payment.
4. Avoid taking on debt. Making a plan to avoid high-interest debt is always a good way to save for more money, and it's an especially smart play if you're working toward saving for a down payment.

How to Lower Your Monthly Car Payment

If your goal in making a larger down payment is to reduce your monthly costs, making a bigger down payment isn't your only option. Explore doing the following:

1. Increase your credit score. A higher credit score can lead to a lower interest rate and, therefore, a lower monthly car payment. If you check your credit score and don't like what you see, you can take steps to improve it such as paying your bills on time, chipping away at your credit card balances and catching up on past-due payments.
2. Compare auto lenders. Check with various lenders, including banks and credit unions, to see who might offer the best lending terms (including an attractive interest rate). With that information in hand, ask the car dealership whether it can offer a better financing deal.
3. Consider economizing your vehicle purchase. Settling for a less costly car can mean big savings, so it's a good idea to carefully evaluate your priorities before you decide on a vehicle. Compare your top choice to other options, which could mean opting for the base models with fewer bells and whistles or compromising on a cheaper model.

Learn more: How Can I Get a Low Car Payment?

Balance Your Down Payment With Other Goals

Making a larger down payment can have many benefits, but when trying to figure out the right amount for you, be sure not to drain your savings accounts for the sake of the above benefits. It's key to keep enough money in your bank account to act at least as an emergency fund. Depleting your assets can also set you back in your progress toward other financial goals, such as a down payment on a house.

Whether you decide on a down payment of 10%, 20% or another amount, you can make sure the road toward that new or used car is smooth. How? By shifting into high gear when it comes to setting aside money for the down payment, monitoring your spending and keeping on top of your credit.