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Benefits of making a down payment on a car Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by offering you interactive tools and financial calculators that provide quality and accurate content by allowing users to conduct research and compare information for free and help you make sound financial decisions. Bankrate has agreements with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this website are provided by companies that compensate us. This compensation could affect how and where products appear on the site, such as the order in which they may appear in the listing categories, except where prohibited by law. This applies to our loan products, such as mortgages and home equity, and other products for home loans. This compensation, however, does have no impact on the information we publish, or the reviews you see on this site. We do not contain the entire universe of businesses or financial offers that may be open to you. DjelicS/Getty Images

4 min read Published September 21 2022

Written by Allison Martin Written by Allison Martin’s career began more than 10 years prior to that as a digital content strategist. She’s published in numerous prestigious financial media outlets, such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Editor: Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances with concise, well-researched and reliable information that breaks down complicated topics into bite-sized pieces. The Bankrate guarantee

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Experts recommend a down payment in the range of 20 to 20 percent for a new car, or 10 percent if you’re buying a used. It’s not a bad idea to make a bigger deposit to get the most savings from interest However, only if you have the money to.

5 benefits that come with a down payment Down down payments are often a necessity — lenders generally require at minimum 10 percent down. Even if it’s not required, it is nevertheless worthwhile. After all, it can save you money each month, and also help you pay less interest. 1. Lower monthly payments Because putting money down lowers the overall amount you need to borrow, you can expect to pay less every month, which means lower monthly payments. It’s easy to comprehend the math. You can use an app to estimate monthly payments. If you borrow $30,000 at 5 percent interest over up to 48 month, you’ll be paying an average of $691 per month. With a 20 percent down payment of $6,000, you’ll reduce the amount you’ll need to borrow to only $24,000. That’s the monthly installment of $553. 2. A higher equity level when you first start out. Equity is the difference between what you own for a vehicle and its potential price at sale. A large down payment can boost your equity since you don’t have to finance the same amount through an lender. Cars are a . As the value of your car decreases, you’re more likely to end up upside down on your loan — if you have more debt than the value of your vehicle. A higher down payment will protect against depreciation as the equity acts as buffer. Because you own a larger part of your vehicle at the beginning with a higher down payment, you’re less likely to end up with a loan which is more expensive than what you could sell the car. 3. Lower interest costs The main advantage of a substantial down payment is that it lowers the amount you must take out. If you are able to borrow less, you are paying less. More money in your pocket and less of the lender’s — is always a good thing. Similar to the example of the monthly payment 20 percent down payment can make a huge difference in the cost for an automobile loan. If you borrow that same $30,000 with a 5 percent interest rate over two years, then you’ll pay 3162 dollars in interest. If you make a down payment of $6,000, you’ll only pay $2,530 over the life that the loan. 4. Potentially lower rates Some lenders could be willing to give you a if you have substantial down payments. Because a downpayment shows you know how to handle money, you’ll be less of a risk for the lender. There are many variables that affect your interest rate, including credit score and income, and it’s not a guarantee. However, a substantial down payment is something that lenders will consider and could assist in overcoming areas where you aren’t so strong in. 5. Better acceptance rate If you have excellent or good credit, not putting money down may not be a major issue. But a lower credit score means you’ll pay a higher interest rate or, worse being turned down for an loan. However, if you’re able make a down payment, you may increase your approval odds or persuade the lender to offer you better terms on financing. The experts recommend that you put down at least 20 percent. The most commonly used advice is to pay at least 20 percent when purchasing an automobile. Of course, more is better. The less you have to finance the less you have to finance, the better. But it is quite a sum of money. In 2022, the median new car price was slightly over 48,000 dollars in July, as per Kelley Blue Book (KBB). A down payment of 20 percent on that is equal to $9,600. Even used vehicles averaged at — which comes to $5,600 with a 20 percent deposit. These are averages, so you’ll definitely have the ability to find less costly options. Just know that prices continue to rise due to the global shortage of essential components like semiconductors. You certainly don’t want to use up your savings to pay for a down payment. Take advantage of rebates when you are looking to buy new or used, and look around for a . Selling or trading it in at a dealership could go a long way towards getting to that coveted 20 percent mark. If you’re unable to pay for 20 percent, it’s okay to put down as little at 10 percent. Certain dealers might only require a $1,000 down payment. Whatever the case, try to put down the most you can in order to avoid taking out a large loan that can leave you with a huge debt. Don’t put any money down. must always have an amount of money to pay down when purchasing cars. Some experts say it might not be needed if you’re able to score some kind of loan, but the majority of buyers aren’t eligible for this. Dealers provide zero-down financing since they are able to earn the highest interest. After all, it is the exact opposite of a substantial down payment. Even with low rates, you’ll end up needing to finance more. That’s more interest to pay and a greater likelihood of being . A zero-down deal could also come with a to help offset the cost of monthly payments. This is the most dangerous trap. The longer your loan duration will be, the more money you’ll have to must pay the lender. The next steps: The more you are able to pay in advance to the lender, the better off you’ll be. A 20% down payment is the go-to amount however, you are able to put down more when you are able to afford it. Be sure to not pay under 10 percent, or $1000 and especially if you have the funds to still enjoy a favorable interest rate. Make sure you compare automobile loans and find financing before you begin shopping for a car. In this way, you’ll know precisely how much you are able to afford and how much you’ll need to pay to make a big down payment. Learn more


Allison Martin’s work started over 10 years ago, as a digital content strategist and she’s since been featured in a variety of top financial publications, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are dedicated to helping their readers gain the confidence to control their finances with concise, well-researched and well-written facts that break down otherwise complex subjects into bite-sized pieces.

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