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Car Loan Down Payments 101

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A car down payment is the lump sum of money a buyer puts toward the price of a car. Budgeting to save for a down payment on a truck or car not only gets you in the habit of making regular payments, but it also shows lenders you’re a financially responsible person who’s willing to invest your own money towards a vehicle. And this could help with your auto loan approval. However, down payments aren’t always needed when buying cars. Some lenders now offer no money down car loans.

Related: How does financing a car work?

What is the Minimum Down Payment on a Car?

Despite sticking to a budget, cutting costs where possible and saving for a car down payment loan, officers at banks and dealer finance representatives know that it’s tough to save enough money to buy a car without borrowing.

So how much of a down payment do you need when you’re buying a car? It used to be that financial experts recommended putting down at least 20 percent for a car down payment, but in recent years that amount has become more flexible. It depends on a couple of things.

Firstly, if you buy a new vehicle you might not even need a down payment. You might qualify for cash back rebates which get applied directly to the vehicle’s purchase price. These rebates can take the place of a down payment.

Secondly, a dealership might be willing to accept your current vehicle as a trade-in. They’ll offer to buy your car, truck or SUV for an agreed-upon price. Instead of paying you for it, they’ll apply that amount towards the purchase of a vehicle on their lot. This way, you don’t have to come up with the cash for a down payment.

Here’s an example. Let’s say you have your eye on a new car worth $30,000. Yet based on your current income, expenses, and the interest rate, you qualify for a loan amount of $21,000.

You have a couple of options to come up with the difference. You could start saving a few hundred dollars monthly to build up your down payment. Or you could trade in a vehicle with a value of at least $9,000. That way you won’t have to spend months building your 30 percent down payment car savings fund.

Related: Average auto loan rate for bad credit

How Much Should I Put Down on a Car With Bad Credit?

If your credit is less than perfect, look at how different down payment options for car buying might help improve your chances of getting a loan. A bigger down payment shows lenders you’re serious about buying a vehicle and that you’re trying to be more financially responsible. So how much should you put down on a car when you’re trying to finance a car with bad credit? As much as you can.

Related: What credit score is needed to buy a car?

For example, one school of thought suggests a down payment of at least 20 percent. This is roughly the average initial depreciation (reduction in value) of a new car that occurs as soon as you drive it off the dealer’s car lot.

Lenders like to see a down payment amount that covers the depreciation when they’re making loans to borrowers with not-so-great credit. If you do run into financial troubles and can’t make the loan payments, they know they can sell the vehicle for at least enough money to pay off your loan. And then the lender won’t be in a position where they’re owed more money than they can get for the car.

How Much Do You Have to Put Down on a $10,000 Car?

Not everyone wants to buy a new car. A safe and reliable used car might be a better fit for your budget and family. However, used cars can still cost a lot of money. Luckily, you could have the option of getting a used car loan.

The advice regarding how much to put down is a little different when it comes to a down payment for used cars. According to auto site Edmunds.com, the average down payment for a used vehicle purchase is around 11.7 percent of the purchase price. Depending on the dealer, plan to put down at least 10 percent. So on a $10,000 used car, expect to put down $1,000 in cash or with a trade-in vehicle.

Is It Better to Make a Large Down Payment on a Car?

A bigger down payment can help you lower the monthly payments on a car loan, or pay the loan off faster. This can improve your monthly cash flow and help you meet other financial goals sooner.  

A bigger down payment might also help you qualify for a car loan with a lower interest rate.  After all, you’ve invested more of your own money in the vehicle. Generally, the more money borrowers invest in a car, the less likely they are to default on loan payments. This makes higher down payment car loans less risky for lenders and they will reward you with a lower rate.

However, don’t make the mistake of using all of your savings for a down payment. Make sure you still have enough emergency savings to help you get through any unexpected financial situations.

It’s easy to calculate the required down payment on a car without using a new or used car down payment calculator. For example,  let’s say you’re wondering “how much down payment for a $70,000 car? In this case, you would need $7,000. Can’t come up with a down payment? Contact your lender. Some car loans don’t require a down payment at all.

When it comes to down payments on a car, every situation is a little different. In some cases, a larger down payment makes sense to keep monthly loan payments low. However, in other cases, it may be wiser to hold on to your cash savings and finance the whole loan amount to purchase a safe and reliable vehicle for your family.