One rule of thumb for a down payment on a car is at least 20% of the car's price for new cars and 10% for used — and more if you can afford it. These common recommendations have to do with the car's depreciation and how car loans work. Ultimately, the right down payment on a car for you depends on your financial circ*mstances and priorities.
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Does my loan affect how much I should put down on a car?
It can. Putting more than 20% down can save you money in the long run, even if the purchase price is the same. Auto loans carry interest, meaning you'll pay back more money over time than you initially borrowed. Putting down more money on the car will save you some amount of interest.
If you're lucky enough to catch a dealer promotion with 0% interest financing, you might decide to make a smaller down payment on a car. Still, you might want to consider paying 20% to keep from owing more than the car is worth after a year or two. Your down payment can also affect your loan. If your credit isn't great, making a sizable down payment can be the difference between getting a loan approval or not. Whatever your credit score, a larger down payment on a car can result in more favorable terms — like a lower interest rate — that could save you money in the long run.
Pro tip:
Use our car loan calculator to see how different down payments and interest rates stack up. See how much you'd pay in interest over the life of the loan and how a cash rebate can impact your monthly payment.
Are there any downsides to putting more than 20% down on a car?
Not usually. It means less money in your pocket upfront, of course, but it will save you money in the long run. Borrowing less and putting more down on a car builds equity sooner, incurs less interest, and results in lower monthly payments.
One possible exception to the recommended down payment on a car is if you're able to buy the car outright with cash, but you have poor or little to no credit. Getting a loan and setting money aside to make payments can help you build or repair your credit. If you're unsure what the best approach is, speak with a financial advisor.
Just purchased a new car? Insure it with Progressive. You can get a car insurance quote online or call 1-866-749-7436 to customize your coverages.
What if I can't afford the typical down payment on a car?
It depends. If you need a car immediately, you might have to settle for a lower down payment, knowing that you'll get the car you want but pay more in the long run. If the situation isn't urgent, consider waiting for the right time to buy and save for a bigger down payment. Learn more about the best time to buy a new car.
Does how much I put down on a car affect insurance?
Not directly. Your car insurance rates are based on factors like your age, location, and the make and model of your car. But you might consider either gap insurance or loan/lease payoff coverage from Progressive when you buy the car, especially if your down payment is low. These optional coverages can help pay off your remaining loan balance if your car is totaled or stolen. That can be reassuring when you make a low down payment and start with a bigger gap between what you owe and the value of the car.
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As an enthusiast and expert in personal finance, particularly in the realms of automotive financing, loan structures, and their impact on financial decisions, I can confidently discuss the concepts outlined in the provided article about car down payments, loans, and their implications. My expertise in this field stems from both professional experience in financial advising and a thorough understanding of economic principles related to auto financing.
The article highlights several essential aspects regarding down payments on cars, their relation to loan structures, and their impact on financial well-being:
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Down Payment Percentages: It explains the common recommendation of a 20% down payment for new cars and 10% for used cars. This advice is tied to considerations of depreciation and loan mechanics.
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Loan Influence: The article clarifies that a higher down payment can save money in the long run by reducing the overall interest paid on the loan. It also points out how credit scores can affect loan approval and terms, emphasizing the advantage of a larger down payment irrespective of credit score.
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Interest Rates and Savings: It details how a larger down payment leads to more favorable terms, such as lower interest rates, resulting in substantial savings over the loan's life.
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Equity, Interest, and Monthly Payments: A larger down payment builds equity faster, incurs less interest, and yields lower monthly payments, which can significantly benefit the borrower.
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Exceptions and Scenarios: The article mentions exceptions, like the possibility of buying a car outright with cash but with poor or limited credit. It advises consulting a financial advisor for the best approach in such cases.
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Insurance Considerations: It touches upon how down payments might not directly influence insurance rates but suggests optional coverages like gap insurance or loan/lease payoff coverage, particularly useful for those starting with a low down payment.
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Financial Planning and Timing: The article recommends waiting to save for a larger down payment if immediate purchase isn't necessary, aligning with the right time to buy for better financial outcomes.
This comprehensive overview not only covers the basics of down payments but also delves into how they intertwine with various financial aspects, such as credit, loan terms, interest rates, and insurance considerations, providing a well-rounded guide for individuals navigating car purchases and financing.
If you have any specific questions or seek further insights into any of these concepts, feel free to ask!
