How Making a Down Payment Can Save You Money on Your Next 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.


, - December 4, 2018

Some car buyers may be hesitant about making a down payment on an auto loan. However, making a down payment can help save you money, but how much do you need put down? It really depends on where your credit and financial status falls.

Why Should I Make a Down Payment?

When you have good credit, you may be able to qualify for a low or zero APR deal with the option of no down payment. If this is the case for you, you should still consider making a down payment. Ideally, you want to put as close to 20 percent down as possible, but any down payment helps. There are more advantages than disadvantages to making a down payment, and they include:

  • Reducing interest charges – Not everyone can qualify for a zero percent APR, and interest charges can make a big difference in the overall cost of a car loan. When you make a down payment, you reduce the interest charges and save money over the loan term.
  • Lowering your monthly payment – In addition to reducing interest charges, you can lower your monthly payment by making an initial down payment. The bigger the down payment, the lower the monthly payment.
  • Decreasing or avoiding negative equity – Vehicles depreciate, with many car owners underwater on their auto loans, meaning they owe more on the loan than the vehicle’s worth. You can offset or even eliminate negative equity by making a large down payment.
  • Paying the loan off faster – You can shorten the loan term and pay off the loan faster by making a sizeable down payment.

Even if you have bad credit, you can get the same benefits out of a down payment. But when dealing with subprime financing, you generally can’t avoid having to make a down payment. These lenders typically require borrowers who have bad credit to put down $1,000 or 10 percent of the car’s selling price, whichever is more cost-friendly for the buyer. You can make this initial payment with cash, by using trade-in equity, or a combination of both.

How Much Will a Down Payment Save Me?

If you’re unsure about how a down payment can save you money, you can use online tools to crunch some numbers and get an estimate on what your auto loan could look like using different down payment amounts. Many car manufactures also have payment calculators you can use.

Let’s say you live in Ohio and want to finance a 2017 Toyota RAV4 LE for 60 months, have a credit score of 670, and an estimated APR of 12.99 percent. Here’s how different down payments could affect your monthly payment:

Vehicle price (MSRP) Down payment amount Monthly payment amount
$24,410 0% – $0 $555
$24,410 10% – $2,440 $500
$24,410 15% – $3,662 $472
$24,410 20% – $4,880 $444

As you can see from the table, if you budget accordingly, you could decrease your monthly payment by over $100 by making a sizeable down payment.

Ready to Start the Financing Journey?

Regardless of your credit score, you should set aside some money in your budget for a down payment. Whether that comes from a trade-in or out of pocket, any amount of money used toward a down payment helps. If you’re ready to finance a vehicle and have a down payment ready, but worry your credit is holding you back, let CarsDirect help.

We work with a nationwide network of dealers that have the lending resources available to help people with bad credit get the financing they need. Take the first step today and fill out or free-of-cost online car loan request form.

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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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