Not Sure How Much to Put Down on a Car? Read This

Not Sure How Much to Put Down on a Car? Read This

Posted on February 21, 2024

We talk a lot about car loan down payments as they are an integral part of the process. But how much is enough? Is there an ‘ideal’ amount to put down on a car? We asked our car loans team to outline the benefits of using a down payment and how much to put down on a car.

A down payment on a car loan helps in a number of ways. It reduces the amount of loan you need to buy the car, it reassures lenders that you’re risking your own money as well as theirs, it helps prevent negative equity if buying a new and will reduce your monthly car loan payment.

Not all that long ago, people would regularly put down 20% as a down payment on a car.

Steadily rising prices meant saving up 20% could take a while or put finances under strain. This has gradually led to people putting less money down.

Car loans have become longer to help cancel out higher prices charged for cars and down payments have become smaller, for the same reasons.

Distribution of car loan term lengths

Is There an Ideal Car Down Payment Amount?

There is not an ideal amount for a car loan down payment. Many lenders will require a minimum of 10% but you can get no money down car loans, so nothing is set in stone.

Typically, we recommend somewhere between 10-20% of the car’s value for a down payment. The more you can afford to put down, the better.

However, we urge caution when putting together a down payment. While a larger down payment means a cheaper loan, we would urge you to not empty your savings to pay it.

You’ll still need savings and an emergency fund is a necessity.

We suggest using savings buckets, where you allocate a portion of savings towards your car loan down payment while leaving other savings in place to handle emergencies.

Benefits of Car Loan Down Payments

There are benefits to a down payment, as we mentioned above.

Reduces the car loan amount: The more you put down, the less you have to borrow. This helps you afford the loan but also helps you qualify for it too.

Reassures lenders your own money is at risk: Lenders are in the risk business. The lower the risk you present, the more likely they are to lend you large sums of money.

Helps prevent negative equity for new cars: A down payment can help offset that initial dip in value as you drive away a new car. While negative equity isn’t a bad thing, not everyone likes it.

Higher chance of application acceptance: A higher down payment will increase your chances of being accepted for the loan. That’s because it lowers any potential losses the lender would make if you defaulted, which lowers the risk.

Reduces your monthly payments – A lower loan amount means a lower monthly payment. If money is tight, a larger down payment is cheaper than a longer car loan.

So, there is no perfect amount for how much to put down on a car but we typically recommend between 10-20% of the car’s value. Anything over that is just a bonus!

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