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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. 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 climbed. In early 2024, the average price of a new car was $47,000, meaning a 20% down payment would be $9,400. 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.
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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.
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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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FAQs
Not all lenders require a down payment, but NerdWallet suggests putting down at least 20% of a new car's purchase price, or 10% for a used car.
What is a good amount of money for a downpayment on a car? ›
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.
Is $2000 a good down payment on a car? ›
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.
Is $500 a month for a car good? ›
An affordable car payment would be one that doesn't exceed $600 a month, based on the rule of thumb that your car payment shouldn't be more than 15% of your take-home pay. If you take out a 60-month car loan at 8% APR, you should aim to take out a car loan of less than $30,000.
Is 10% down payment enough for a car? ›
It's good practice to make a down payment of at least 20% on a new car (10% for used). A larger down payment can also help you nab a better interest rate. But how much a down payment should be for a car isn't black and white. If you can't afford 10% or 20%, the best down payment is the one you can afford.
Is $1500 enough for a down payment on a car? ›
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.
How much should you put down on a $100,000 car? ›
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.
Is $2,500 enough for a car down payment? ›
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.
Is $3,000 enough for a down payment on a car? ›
Down Payment Rules to Live By
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).
Is it bad to put too much down payment on a car? ›
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.
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.
What is a realistic monthly car payment? ›
The average monthly car payment for new cars is $738. The average monthly car payment for used cars is $532.
Is $1,000 a month a lot for a car? ›
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.
What is a realistic down payment for a car? ›
The typical down payment on a car ranges from 11% to 20% of the car's value. The credit bureau Experian says a 20% down payment might help shield you from depreciation. Depreciation refers to the ever-shrinking value of your car.
What credit score is needed to buy a car? ›
The credit score required and other eligibility factors for buying a car vary by lender and loan terms. Still, you typically need a good credit score of 661 or higher to qualify for an auto loan. About 69% of retail vehicle financing is for borrowers with credit scores of 661 or higher, according to Experian.
Why are car down payments so high? ›
Cars are a depreciating asset. As the value of your vehicle decreases, you're more likely to go upside down on your loan — when you owe more than your car is worth. A larger down payment protects against depreciation because the equity acts as a buffer.
What is a good down payment on a $25,000 car? ›
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 I put down on a 30k car? ›
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.
Is 50% too much of a down payment for a car? ›
If you want to, you can definitely make a 50% down payment on a car if you have the cash. It's uncommon, but as long as you finance at least the minimum amount – usually $5,000 if you have bad credit – lenders don't have a problem with you making a really big down payment.
What is a reasonable amount for a down payment? ›
Know Your Down Payment Amount
Aspiring buyers typically ask, “Is it best to put 20% down on a house?” This is a laudable goal as a minimum 20% down payment waives private mortgage insurance (PMI) on conventional loans. However, eligible borrowers can put down as little as 3% but pay additional fees.
