How Much Do You Need To Put Down On a Car?

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Contributing Writer

Amy Fortune is a contributing writer for CarsDirect and lead writer/editor for AutoCreditExpress. She also contributes regularly to several other high-traffic blogs. Amy was born in North Carolina and grew up with an appreciation for NASCAR and everything automotive. Now based in the Motor City, she continues to be happily immersed in car culture and automotive finance.


, Contributing Writer - February 16, 2017

The right amount for a buyer to put down on a car purchase depends on whether they're buying a new or used car and the shape of their credit. The old "rule" was that 20 percent of the vehicle's selling price was standard. And while there are plenty of advantages to providing at least this much up front, not every buyer can afford to part with so much cash at once.

Today, a ten percent down payment is considered fairly standard, especially for car buyers with bad credit. Of course, when it comes to putting money down on a vehicle, something is always better than nothing. So, having even a small down payment will help.

Figuring Out the Right Amount to Put Down on a Car

Obviously, it's unwise for car buyers to deplete all of their cash in order to put up a large down payment. Emergencies do come up, so all consumers should keep some savings to cover unexpected expenses. But it's a good idea for vehicle shoppers with less than perfect credit to put down as much money as they can afford.

This is mainly because a low credit score normally means a higher interest rate when it comes to car financing. So, the more cash down, the less consumers need to finance. And taking out a smaller loan means that they won’t have to pay as much in interest charges.

For example, someone with bad credit might purchase a used car that requires them to take out a loan for $15,000 with a five-year term (60 months) at a 13 percent interest rate. With no down payment, this person will pay $341.30 a month and a total of $20,478 over the loan term.

But with a 10 percent down payment, which equals $1,500, they'll only have to finance $13,500. So, with the same loan terms, their monthly payment would be $307.17, and the final cost of the car would come out to a total of $18,430.20. Ultimately, the down payment will save the buyer about $547.80.

In an even better scenario, the buyer has 20 percent ($3,000) of the $15,000 selling price to put down. This means that they only have to borrow $12,000. Again, with the same terms in place, the buyer in this situation would pay $273.04 a month for 60 months, which adds up to $16,382.40. Here, the buyer would save $1095.60.

After doing the math and looking at the numbers, it's easy to see how when a higher interest rate is a factor, having a bigger down payment helps a lot. And if a new car is purchased, being able to provide a substantial amount of cash up front matters even more. This is because most brand new vehicles lose about 19 percent of their value in the first year of ownership. So, a 20 percent down payment would be necessary just to cover the depreciation and keep the buyer from accruing negative equity.

Down Payments and the New vs. Used Debate

All cars lose value over time, but new vehicles depreciate much more quickly. For this reason, it is often recommended that bad credit buyers strongly consider a used car purchase. By choosing a more affordable pre-owned vehicle, a consumer with credit issues won't have to deal with the highest depreciation costs and a high interest rate at the same time.

They'll also benefit from the following:

  • Having lower monthly payments will make it easier for them to pay on time and improve their credit.
  • Paying less for a car will allow them to put money aside for necessary maintenance and repair work.
  • By requesting a smaller loan that poses less risk to the lender, they may have a better chance at approval.

Consumers with less than perfect credit should also remember that a trade-in can count as all or part of a down payment on their next vehicle. If a buyer has equity in a car that they own, or it is paid off, this vehicle's trade-in value is just as good as cash at a dealership.

Finding the Right Dealership for Bad Credit Car Buying

If you have bad credit and need to finance a car purchase, it's important to find a dealership that can work with unique credit situations. CarsDirect can help you do just that by matching you with a dealer in your area that specializes in finding auto loans for buyers with special finance needs.

Our service is free, and contacting us places you under no obligation to buy anything. After being in the business for over two decades, we've already provided assistance to thousands of drivers. And we look forward to getting you back on the road next. So, just fill out our simple and secure 1-Step Auto Loan Request to get started today.

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, Contributing Writer

Amy Fortune is a contributing writer for CarsDirect and lead writer/editor for AutoCreditExpress. She also contributes regularly to several other high-traffic blogs. Amy was born in North Carolina and grew up with an appreciation for NASCAR and everything automotive. Now based in the Motor City, she continues to be happily immersed in car culture and automotive finance.


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