How much should a down payment on a car be?

Down payment on a car


A down payment on a car will be a requirement from the lender in many cases, and can also offer the borrower significant benefits, so deciding what you may be able to pay up front is time well spent.

Twenty percent has long been recommended for new-car purchases, largely to offset depreciation. As new cars depreciate by a fifth in their first year, covering this amount with a down payment helps prevent becoming upside down, when the borrower owes more than the value of the vehicle.

Negative equity can lead to a number of problems. For example, if your car is totaled or stolen, an insurance company will typically pay only for its market value, leaving you to find cash for the balance on the auto loan. Similarly, if you want to sell your car before you’ve paid it off, being upside down means the sale price won’t cover your debt. But making a good down payment when taking out financing, and reducing the loan amount needed, helps prevent these scenarios.

When buying a used car, someone else has already borne the brunt of the depreciation so a down payment of about 12 percent should be reasonable for a private-party purchase, according to Edmunds. If buying a used vehicle from a dealership, the price may be higher and depreciation greater, so negotiate the deal to take these things into account, it recommends.

In reality, the average down payment for both new and pre-owned cars is about 12 percent. However, the more money your budget allows you to put down, the stronger your position.


Advantages of a down payment on a car

  • Lowers the loan amount and finance costs
  • Helps prevent becoming upside down on a car
  • May enable you to go for a shorter loan term, and save on interest charges
  • A larger down payment might reduce the interest rate offered by a lender
  • Gives consumers with bad credit* a better chance of loan approval


Estimate the effects of money down on financing

Finance calculators will help you see how a down payment affects your potential financing and what amount is right for you.

Use RoadLoans’ affordability calculator to enter your desired monthly payment, a loan term, APR and down payment to get an estimated loan amount. For example, a $400 monthly payment, 60-month loan term, four percent APR and $2,000 down suggests a loan amount up to $23,720. Adjust the down payment figure, which can include the value of a trade-in vehicle, if you have one, to see how it adds to and subtracts from your loan amount.

Coming at it from another angle, use the monthly payment calculator to gauge an affordable auto payment. Start off with loan amount and add loan term, APR and down payment to figure out what’s good for your budget.

Besides down payment, loan term and APR are of course key parts in these calculations and will affect how much is paid in finance charges over the life of the loan.


How to get a down payment

Remember cash, a trade-in or both can be used for a down payment on a car. If you currently have a vehicle, you can decide whether to sell it privately or trade in at the dealership. Look up its private-party and trade-in values at websites like Consumer Reports, Edmunds and Kelley Blue Book to know what you can expect to get, and what could be put toward a down payment.

When planning ahead and saving up, think about tax season. Tax refunds in recent years have averaged about $3,000; all or part of which might make a useful contribution for a down payment on a vehicle.

Keep in mind your credit score, too. Consumers with poor credit histories will generally be asked for a higher down payment than those with better credit.


Apply for a preapproved loan in minutes

With an idea of what to make as a down payment and how much car you may be able to afford, apply for financing online with RoadLoans. As a full-spectrum lender, we accept applications from people with all types of credit, including bad credit and no credit. Our simple, one-page application takes just a few minutes to complete and you’ll received an instant decision. If approved, you can shop with confidence, already knowing the terms of your loan, and negotiate a great deal on your car.

Apply for a car loan online.


* “Bad” or “Poor” credit generally is considered a FICO score around 600 and below by sources including the Consumer Federation of America and National Credit Reporting Association (reported by the Associated Press),,, Investopedia, and others. The Congressional Budget Office identifies a FICO score of 620 as the “cutoff” for prime loans. FICO scores are not the sole factor in lending decisions by and Santander Consumer USA.


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