Why Down Payments are Good for Car Buyers

Get Car Financing
Even with poor credit.

By

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 12, 2018

Putting money down isn’t always required, but making a down payment of any size can only help, not hurt, an auto loan. In fact, if you crunch all the numbers correctly while budgeting for your car loan, you could save yourself hundreds of dollars down the road by making a down payment.

Down Payment Benefits

Many car buyers associate a down payment with lowering their monthly payment. Although a down payment can definitely lower your monthly payment, it can do so much more. Some extra benefits that come with making a down payment include:

  1. Increases approval odds – If your credit isn’t in the best shape, a larger down payment can help you get approved for a car loan.
  2. Reduces the size of your loan – The total amount you have to borrow decreases when you make any size down payment.
  3. Reduces your interest charges – A down payment reduces the interest charges over the entire course of the loan. If you have bad credit and a higher interest rate, a down payment can save you even more money.
  4. Avoids or cuts down on negative equity – You can’t prevent depreciation from happening, but you can limit the time you spend underwater on a loan. Having negative equity, or being underwater, is when you owe more on the loan than the vehicle’s worth.
  5. Makes it easier to pay off the loan sooner – You can choose a shorter loan term by making a sizeable down payment, which also helps to decrease interest charges.

How Much Money Should I Put Down?

Just how much money you should put down depends on factors such as your credit score, income, and car choice. When you have bad credit and are using a subprime lender, they typically ask for a minimum of $1,000 or 10 percent of the vehicle’s selling price, whichever is less. To meet the down payment requirement, you can pay in cash, trade-in equity, or a combination of both.

If you have good credit, you may not be required to put any money down. But just because you don’t have to doesn’t mean you shouldn’t.

Let’s say you want to finance a car worth $20,000 for 60 months and you qualify for an interest rate of five percent. Using Chrysler Capital’s monthly payment calculator, here’s how different down payment amounts affect your estimated monthly payment:

Down payment amount Estimated monthly payment Difference in 0 down monthly payment
$0 – 0% of vehicle’s selling price $377 N/A
$2,000 – 10% of vehicle’s selling price $339 Decreases by $38
$3,000 – 15% of vehicle’s selling price $320 Decreases by $57
$4,000 – 20% of vehicle’s selling price $301 Decreases by $76

The Bottom Line

Regardless of your credit situation, there are more pros than cons to making a down payment, and you could see some big savings if it’s large enough. If you have a down payment set aside and want to finance a vehicle, but worry you can’t get approved due to credit issues, let CarsDirect help.

We work with a nationwide network of special finance dealerships that have the lending resources to help get credit-challenged buyers the financing they need. Our car loan request form is free of cost and obligation, and we'll get to work matching you with a local dealer after you fill it out!

Free Credit Score

Get your free credit score now! Get a copy of your most recent credit score.

Get Your Free Score

Auto Insurance

Get competitive quotes on insurance in your area.

Sell Your Car

We will buy any car, running or not, with or (in most cases) without the title.

Get My Price

Need a Car Loan?

It only takes a minute.

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.


Search New Cars by Loan Payment »

View estimated loan payments based on local rebates and financing offers.

Loan approval is not guaranteed and is subject to credit application and approval of the lender. Individual loan terms may vary. Use of this website constitutes acceptance of CarsDirect.com's Terms of Use, Disclaimer, Privacy Policy, and Cookie Policy.

Privacy Policy|Terms of Use|Cookie Policy|Disclaimer
COPYRIGHT 1999-2019 MH Sub I, LLC dba CarsDirect.com