In general, you should strive to make a down payment of at least 20% of a new car’s purchase price. For used cars, try for at least 10% down.
If you can’t afford the recommended amount, put down as much as you can without draining your savings or emergency funds. The more you can put down when buying a car, the better your financial position will be when you drive away.
Many people do buy cars with lower down payments.
Some simply don’t have enough money saved to put down the recommended amount, especially as car prices have skyrocketed. In 2021, the average price of a new car was approaching $42,000, meaning a 20% down payment would be $8,400. For used cars, the average price surpassed $25,000, so 10% down would be $2,500. These down payment amounts can include cash, the value of a trade-in or both.
Other people can put little or nothing down on the car because their credit scores, previous auto loan history and debt-to-income ratio indicate little risk for a lender.
Why your car down payment amount matters
Lower your interest rate
Typically, the more you put down, the lower your interest rate will be. Making a substantial down payment and financing less of the purchase price signals to lenders you are a lower-risk borrower. Also, with a lower loan amount, you can most likely go with a shorter term and pay less in interest over the life of the loan.
Lower your monthly payments
Putting more down reduces the amount you'll need to finance and helps you to pay the loan off sooner. As a general rule, every $1,000 in the down payment reduces your monthly payment by $15 to $18.
You can use our auto loan calculator to see how various down payment amounts will affect your monthly payments.
Lower your loan-to-value ratio
Auto loans are secured by the value of the car, and lenders have limits for how much a person can borrow compared with the value of the vehicle — called loan-to-value ratio, or LTV. Every lender has its own LTV rules for loan approval, and in some cases, a larger down payment can help you fall within a lender’s LTV ratio requirement.
Also, lenders use the LTV ratio as a measure of a loan’s risk. When you borrow less than the car’s value, it reduces the risk of the lender losing money if you default on the loan. Loans considered to be lower risk tend to come with lower interest rates.
Avoid being upside down on your loan
When you buy a new car, it loses about 20% of its value through depreciation in the first year. That’s why experts suggest making a bigger down payment on a new car than on a used one.
If you make a down payment of less than 20%, you could end up owing more than the car is worth. This is called being "upside down" or “underwater,” and it can put you in a precarious financial situation. If you decide to sell or trade the car, you would owe the difference.
If you’re in an accident and your car is totaled, the insurance company’s payment — which is based on the cash value of the car — may not cover the full amount you still owe. (Gap insurance is intended to cover this risk.)
Improve your chance of loan approval
If you have no credit or a lower FICO score (about 620 or below), a larger down payment can improve your chances of being approved for an auto loan. And if you are approved, you may qualify for financing with better terms and a lower interest rate. In fact, some lenders require a down payment of 10% or $1,000, whichever is the lower amount, for car buyers with no credit or a low credit score.
Figuring out what makes sense for a car down payment
Because of the financial advantages, the more you can put down on a car the better. The best approach is to put 20% or more down on a new car and at least 10% on a used car if you can afford it. If these recommended percentages are out of reach, here are some possible options:
Some dealers might allow you topay with a credit card, but you might be charged an additional fee. Also, if you aren’t able to pay the credit card balance right away, you’ll likely pay an interest rate that’s higher than your auto loan’s rate, raising your overall cost.
Ask yourself if you can delay purchasing a vehicle. Waiting can give you time to save more toward a down payment. If you don’t have a monthly budget, create one. Determine if there are expenses you can cut and how much. Then, set up an automated transfer to a savings account to begin building a larger down payment.
Put as much as you can down, even if it’s lower than the recommended amounts. If your financial situation improves, you can still pay extra on your car payment to keep from being upside down and pay off your loan sooner. You might also consider refinancing your car loan, which could give you a new opportunity to lower the interest rate and monthly payment.
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In general, you should strive to make a down payment of at least 20% of a new car's purchase price. For used cars, try for at least 10% down. If you can't afford the recommended amount, put down as much as you can without draining your savings or emergency funds.
If you're considering a car that costs $25,000, putting down between $2,000 and $4,000 would be wise. However, the true answer to this question depends on your negotiation strategy. If you can negotiate a lower price or better terms, putting more money down may not save you much interest.
How much should you spend on a car? Whether you're taking out an auto loan or a personal loan to pay for your car, it's a good idea to limit your car payments to between 10% and 15% of your take-home pay. If you take home $4,000 per month, you'd want your car payment to be no more than $400 to $600.
Drivers' average car payments top $700 and $500 for new and used vehicles, respectively, according to Experian's fourth-quarter automotive finance report. For many Americans, the cost to finance a vehicle can be one of the biggest hits to their wallets each month outside of housing costs.
There is no true one-size-fits-all answer to how much you need to put down on a vehicle. However, a good rule of thumb when buying a new vehicle is to have your down payment by 20% or more of the total purchase price. If you are buying a used vehicle, you may be able to put 10% down.
A down payment between 10 to 20 percent of the vehicle price is the general recommendation. But if you can afford a larger down payment, you can save even more money on interest payments over the life of the loan.
How much should you put down on a $25,000 car? For a $25,000 car, consider putting down at least $2,500 if it's used or at least $5,000 if it's new. By putting 10% or 20% down depending on the car's condition, you'll have the best options for loan terms and interest rates.
A good rule of thumb for a down payment on a new car loan is 20% of the purchase price. A down payment of 20% or more is a way to avoid being “upside down” on your car loan (owing more on the car than it's worth).
Here's the short answer: As much as your wallet can comfortably afford! You see, making a larger down payment is one of the best ways to secure approval for an auto loan – even if you've got less-than-stellar credit. And speaking of wallets – it'll save yours some loot by lowering interest payments in the long run too.
Use your annual income as a starting point to calculate how much car you can afford based on monthly payments. Financial experts recommend spending no more than about 10% to 15% of your monthly take-home pay on an auto loan payment.
on the price of a car. is not to exceed 35% of your gross income. That means if you make $40,000 a year, the cars price should not exceed $14,000. If you make $80,000, the cars price should be below $28,000. And at 150 k salary, that means your max car price should be 50 2500.
For large luxury models, $1,000-plus payments are the norm. Even a handful of buyers with subcompact cars have four-figure payments, likely due to having shorter loan terms, poor credit, and still owing money on previous car loans, according to Edmunds analysts.
It may be hard to believe, but it is possible to lease a car for under $100 a month. You may have to fork over a ton of cash upfront, but there are options for those looking for a brag-worthy lease deal with an extremely low payment.
But according to Edmunds, there's another reason why $1,000 monthly payments are becoming more common: Some buyers are taking out loans with shorter-than-normal financing terms to score a better financing deal, which means higher monthly payments. Endurance offers extended protection for your vehicle.
The Fed has raised interest rates to cool the economy.
This means that you're spending more money on your monthly loan payments, since you're paying more in interest. With many of these auto loans starting at 6%, it's no secret as to why car payments are up.
How much should you put down on a $25,000 car? For a $25,000 car, consider putting down at least $2,500 if it's used or at least $5,000 if it's new. By putting 10% or 20% down depending on the car's condition, you'll have the best options for loan terms and interest rates.
How much should a car down payment be? Financial experts recommend a down payment of at least 20 percent when financing a new or used vehicle. This amount is steep for many, especially with the recent spike in new and used car prices. For example, a 20 percent down payment on a $40,000 vehicle is $8,000.
As a general rule of thumb, it's recommended that you put down at least 20% on a new vehicle, and at least 10% on a used car. Depending on the car's selling price, this could mean shelling out quite a bit of cash.
How Much Should I Pay for a Down Payment? Aim for a down payment that's 20% or more of the total home price—that's $40,000 for a $200,000 house. This minimum is partially based on guidelines set by government-sponsored companies like Fannie Mae and Freddie Mac.
Introduction: My name is Errol Quitzon, I am a fair, cute, fancy, clean, attractive, sparkling, kind person who loves writing and wants to share my knowledge and understanding with you.
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