How Much Is a Down Payment on a Car? Your Guide to Down Payments

You've been car shopping for a while, and you're ready to move forward. There's one last question: How much is a down payment on a car? Learn more here.

Liz Froment | 

Feb 11, 2022 | 6 min read

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You've been car shopping for a while. You know what you can afford. You've studied the safety and reliability features, and you've worked out a price with your dealer. It's time to buy.

There's probably just one last thing to hammer out before officially getting your new car—the down payment. So now you have one final question: how much is a down payment on a car?

This guide can help you answer that question. You'll learn the basics about down payments and tips to help you determine what might work best for you.

What Is a Down Payment?

A down payment is a sum of money you give to the dealer upfront before buying a new car. While you don't have to hand over a down payment, there are benefits to doing so.

Many people turn to financing when buying a new or used car. If you don't have the total purchase amount on hand, you can use a loan to pay for your vehicle in monthly installments over time. Lenders use your credit score, vehicle purchase price, and overall finances to help determine the rates and terms on your loan, though your down payment can also impact it.

Do I Need to Provide a Down Payment?

When it comes to down payments, there aren't any set rules. While most people provide cash upfront before they buy, it's not something you must do to complete the purchase.

A down payment helps many lenders remove some of the upfront risk associated with a car loan. So if you decide to buy a car with no money down, realize you may have to pay a higher interest rate throughout your loan. It can also mean you may pay more for your loan over time due to those higher rates.

How Much Is a Down Payment on a Car?

The average down payment on a vehicle typically runs between 10% and 20% of the purchase price. Some suggest aiming for 10% down for a used car and 20% down for a new one. However, while 20% used to be much more typical, the average numbers have decreased over the last decade.

Of course, the number that matters most is what you can afford. If you've been planning on buying a new car for a while and have saved up for a down payment, you may be able to hit a number on the higher end of the industry average.

How Do I Calculate a Down Payment?

If you're shopping around and want to know the down payment on a car, you can quickly run the numbers to get an idea.

A down payment is calculated as a percentage of the final purchase price. For example, if a car you're looking at is $30,000, here are a few different scenarios based on the percentage you may want to put down:

• A 5% down payment is $1,500
• A 10% down payment is $3,000
• A 15% down payment is $4,500
• A 20% down payment is $6,000

Something else to consider is many dealers can take the value of a trade-in and put that toward the down payment, too. So, depending on the value and the amount you want to contribute toward your down payment, a trade-in could cover all or a significant portion of it.

For example, if the dealer offers $3,000 for your current vehicle, you could use all of that and cover a 10% down payment. Or if you had already saved an additional $3,000 and wanted to lower your monthly payment, you could combine the amounts and put 20% or $6,000 down.

Does My Credit Score Impact Down Payments?

Your credit score is one of the main factors lenders look at to determine if they want to loan to you and for what amount. While your credit score doesn't directly impact your ability to provide a down payment, it may affect your loan.

If you have a less-than-perfect credit score and you're worried about qualifying for a loan, a down payment may help. Offering a payment upfront can help lower your loan amount and improve your chances of qualifying.

Why Should I Make a Down Payment?

Even if your lender doesn't require a down payment, you may want to consider the practical benefits of making one. Making a down payment could:

• Improve your chances of financing — If you have a lower credit score, lenders may be more hesitant to approve you for a loan. A down payment can help show you're not as risky for default.
• Reduce your monthly vehicle payments — Any money you put down upfront can reduce your loan amount, which means a smaller monthly payment. A good rule of thumb is your monthly payment can be reduced by about $15 for every $1,000 you put down.
• Lower your interest rates — Offering a larger down payment is another way to signal to your lender that you're a lower risk, translating to lower interest rates on your loan.
• Decrease your loan-to-value ratio (LTV) — Lenders limit how much you can borrow based on the car's value. If your loan doesn't fall within the LTV ratio, a more significant down payment can get you back within the approval range.
• Reduce your risk of being underwater on the loan — Vehicles, even new ones, depreciate quickly. When you take out a loan on a car, you may risk being underwater when the loan value is higher than the car. A down payment can help cover some of that depreciation in the first year.

How Do I Save for a Down Payment?

If you know you may need a new or used vehicle in the coming months, it never hurts to develop a savings plan ahead of time. Even a small head start can help you save for a car or put you in a position to secure better loan terms.

Here are a few tips to help you start:

• Do your research — Looking at the purchase price of the car you want and the value of your trade-in can help give you a ballpark figure to use as a jumping-off point.
• Make a budget — Look at your overall finances and see where you can cut back or save each month to put toward a down payment.
• Improve your credit score — Your credit score plays a significant role in the rates you can get on a loan. Paying your bills on time and eliminating debt can help raise your score over time.
• Consider automation — Online tools and apps can help automate saving, pulling out some available cash from your bank account every day or week.
• Look at your current car — You may also be able to trade in your current vehicle as part of your down payment. See if you can get an estimate of its worth.

Buying a car is a significant purchase, so do your homework ahead of time. Beyond researching the vehicle you want, think about the costs of buying, including a down payment.

Once you have a complete financial picture, it's a lot easier to start narrowing down your choices and decide the best option for you.

Liz Froment

I love learning about money — deals, financing, and what to avoid. All that came in handy after my own extensive car search, where I put everything I learned about the financial side of things to use. That's where I can help you too. I want to give you tools to help you find the best vehicle that will fit your practical and financial needs.