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How Much Should My Car Down Payment Be?

Car Down Payment Cost

Many factors affect your auto loan qualification, including your credit history, income, and loan amount. Your car down payment also makes a difference on your auto loan interest and monthly repayment rates.

Let’s look at how your car down payment amount can help you buy your dream car without breaking your budget.

Figuring Out What Makes Sense for a Car Down Payment

On average, you should make a car down payment of 10% for a used car and 20% for a new car. This is the amount lenders prefer, but most people can really only offer up to 12% for a new car. Your car down payment doesn’t have to be cash only.

You can offer the same value with a car trade-in or combine cash and trade-in to cover the amount. The more you can put down for your car, even up to 25% of the sale price, the better.

It’s always up to you to decide whether to offer a down payment or not. Some buyers opt to provide a lower down payment or even none at all. But you may limit your chances of auto loan qualification without it. Here are the top benefits of a down payment when buying a car.

Key Advantages of a Car Down Payment

1. Reduced Monthly Payments

A down payment means that you’ll pay less money for your car. Typically, every $1,000 in your down payment amount translates to a $15 to $18 reduction in your monthly payment. Use an auto loan calculator to estimate the potential savings. Keep in mind your credit score, too–an auto loan interest rate with a 790 credit score will be very different than one with a 670 credit score.

2. Better Interest Rates

With a down payment, you present less risk to your lender. A larger down payment indicates that you’ll manage to clear your auto loan in a shorter time as well. This means your RBFCU auto loan interest rates will be lower compared with a high-risk borrower.

3. Easier Auto Loan Qualification

A down payment for your car signals to the lender that you are less likely to default on your auto loan. Lenders consider your loan-to-value ratio, which is how much you can borrow compared to the car’s value. A down payment covers a part of the vehicle’s value, so you are essentially borrowing less than its value. Such an outcome can put you within a lender’s loan-to-value limit to access their financing options.

4. Access To 0% Financing

In most cases, 0% financing is only available to borrowers with excellent credit scores. An auto loan interest rate with an 825 credit score can get 0% financing much easier. Lenders can offer better financing flexibility if you have a weaker credit score but offer a substantial down payment.

5. Easier Auto Loan Refinancing

Lenders provide refinancing for vehicles within a specific age limit, usually 7 or 10 years old. It’s challenging to refinance an auto loan over 100k miles simply because it’s an older car. But if you find a car in excellent condition that surpasses the age or mileage limit, offer a down payment to qualify for refinancing. Your RBFCU refinance auto loan rates will be more agreeable even for older vehicles.

6. Offset Depreciation

A new car loses about 20% of its value within its first year on the road and about 15% every year afterward. Paying a down payment of 20% or more on a new car will offset this depreciation. With a smaller down payment or zero down payments, a borrower will owe more than the car’s value.

Such a scenario means you have an underwater or upside-down loan. If you decide to sell or trade in your vehicle with an underwater loan, the seller pays for this difference, which is often a significant financial loss.

How Much Can You Save with Your Down Payment?

Let’s consider an auto loan example of $30,000 payable over five years. The interest rate for this auto loan is 4.5%. Without a down payment, a buyer will pay an interest of $3,557, which is a total of $33,557 for the car.

However, with a down payment of 20%, which is $6,000, the buyer pays interest of about $2,846 on the same loan. These savings of $711 and could be much more with a higher down payment.

It’s that simple: if you put down more money for your car, you will need to borrow less for it. In addition, you automatically pay less interest for a smaller car loan amount, which leads to more savings.

What to Do if You Can’t Make a Down Payment

Not all car buyers can afford a down payment. Some buyers may have a less-than-perfect credit score or simply don’t have that much money in their savings. There are some workarounds to improve your chances of securing a car loan with great interest rates, such as:

      • Gap insurance to cover what you may owe in case of car theft or damage
      • New car replacement insurance if you’re buying a brand new vehicle 
      • Opting for a cheaper vehicle 
      • Enlisting a co-signer with a healthy credit score

Why Your Car Down Payment Amount Matters

A down payment is always a good idea when buying a new or used car. How much you put down depends on how much you can afford, so start with an online auto loan calculator. Adjust the down payment amounts and see how your monthly payments will change. Unless you need to buy a car right away, you can always save up for the down payment.

Set money aside every month while you shop around for your ideal vehicle. With enough saved for a down payment, you can confidently shop for the best auto loan for your dream car. 


When it comes to car loans, every buyer is unique in their budget, credit score, and choice of vehicle. A down payment gives you a chance to get the best car loan rates in the market. To learn more about auto loan down payments, take a look at some of the other articles we’ve written on the subject as well.

Featured Image: Megapixl

About the author: I am a writer and an editor with experience in publishing, research, and SEO strategies. I have an honors BSc in Social Work from the University of Benin, Nigeria.

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