How Large of a Down Payment Should I Make on a Car Loan?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - April 5, 2019

Although not always required, a down payment can make your auto loan more affordable and help you save money. You can make a down payment using cash, trade-in equity, or a combination of both. Just how much money should you put down, though? Your ideal down payment size depends on your budget, as well as the type of car loan you apply for.

Down Payment Requirements for Bad Credit Auto Loans

When you have bad credit, you’re most likely going to apply for auto financing through a subprime lender. Subprime lenders usually require a down payment in order to approve you, so you typically can’t avoid making a down payment.

The good news is the amount required isn’t much. Generally, subprime lenders ask for a minimum of $1,000 or 10 percent of the vehicle’s selling price, whichever is less, and you can apply any combination of trade-in equity or cash to cover it.

While you don’t have to put down more than the minimum, it’s highly recommended that you do so if you can.

How Different Down Payment Amounts Affect Your Car Loan

Making a larger down payment saves you money in the end because you finance less and pay less in interest charges. Just how much money could you save if you make a larger down payment? Let’s look at an example:

Carol is looking to finance a $15,500 car for 60 months. She’s been approved for an interest rate of 18 percent, and has a trade-in worth $2,000. Without a down payment, her auto loan looks like this (note: tax, title, and license fees aren’t included):

  • Down payment: $0
  • Monthly payment: $394
  • Total interest paid: $8,116

And here’s how different down payment amounts affect her car loan:

Down Payment Monthly Payment Total Interest Paid
$1,000 (typical minimum) $368 $7,592
$2,000 (trade-in amount) $343 $7,069
$3,000 (trade-in plus typical minimum) $317 $6,545
$4,000 (trade-in plus $2,000) $292 $6,022

As you can see, if Carol decides to use her trade-in only for the down payment, she can save $51 a month and over $1,000 in interest charges compared to if she didn’t put any money down. If she puts even more down by combining $2,000 cash with her trade-in, she could save over $2,000 in interest charges and over $100 a month.

The Bottom Line

It might seem like a waste of money at first, but it’s clear that you save more in the long run if you make a larger down payment.

If you have a down payment ready, but don’t have a dealer to work with, we’ve got you covered at CarsDirect. We connect car buyers with local dealerships that specialize in helping consumers in unique credit situations. Get the process started by submitting our free and secure auto loan request form today.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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