The average amount of money Americans are putting down on car loans has soared since last year. Borrowers are taking out bigger, longer loans, and those loans require a bigger down payment. Here's a look at the average down payment new car buyers are making in 2022, and why this may be important info for shoppers.
According to new data from Edmunds, the average down payment amount on a new car rose above $6,000 for the first time ever in the first quarter of this year. The average down payment amount on a used vehicle is up to $3,574, 7% higher than in the first quarter of 2021. The average amount down on a new car is up 27% year-over-year to $6,026.
The cost of both new and used vehicles continues to rise, meaning the amount you're required to make as a down payment is going up, too. "Shrunken inventory continues to wreak havoc on both the new and used vehicle markets, and shoppers who can actually get their hands on a vehicle are committing to never-before-seen average payments and loan terms," said Jessica Caldwell, Edmunds' executive director of insights.
As a rule, it's a good practice to strive for a 10% down payment on a used car, and a 20% down payment on a new car. Your down payment requirements will vary by your situation. But, with the rising prices of cars, trucks, and SUVs, these benchmarks can be harder to hit. And, with the prospect of needing this much cash, saving for a down payment can be daunting.
This can be especially true when you're facing a car loan as a bad credit borrower. If you're shopping for a car loan but don't have stellar credit, a minimum down payment is typically required to finance a vehicle, and rising prices on vehicles mean you'll pay more upfront. You may scoff at the requirement, but a down payment actually does you a lot of good as a consumer, and even helps you save money on the overall cost of your car.
Other advantages of making a down payment can be a smaller loan amount, additional loan term options, and savings in interest charges over the life of your loan. For these savings to really make a difference it's a good idea to use the largest down payment possible. On the flip side, though, if you're using a large down payment that depletes your savings it may not be wise. There aren't many other disadvantages to speak of, since it does more good than harm.
If you're ready to look for your next vehicle, don't forget to have your down payment ready, it can make a world of difference in today's competitive car-buying landscape.