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3 min read Published October 20, 2022

Written by Allison Martin Allison Martin Written by Allison Martin’s career began more than 10 years ago as a digital content strategist, and she’s since published in numerous prestigious financial publications, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers feel confident to control their finances by providing clear, well-researched information that is broken down into complicated topics into bite-sized pieces. The Bankrate promises

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We receive compensation for the promotion of sponsored goods and services or when you click on specific links on our website. So, this compensation can impact how, where and when products are listed, except where prohibited by law. This is the case for our credit, mortgage, and other home lending products. Other factors, like our own rules for our website and whether the product is offered in your region or within your own personal credit score may also influence the way and place products are listed on this site. We strive to provide an array of offers, Bankrate does not include information about every credit or financial item or product. New and used car prices have shot up, forcing customers to settle for greater monthly installments. A lot of people are digging to their bank accounts to make . But exactly how much money should you put down to secure an ? Many financial experts suggest 10-20. It’s important to evaluate your financial situation and find an amount that is within your budget. The average vehicle loan for downpayment In the quarter that began in 2022 the median down payment for an automobile was according to Edmunds. This is an rise of 27 percent from one year ago, as well as the most level it has ever been. The median down payment on used vehicles was less at $3,574 in the same period. However, this is 7 percent higher than it was last year. Given current market conditions the increased down payments shouldn’t be unusual. New and used vehicle prices also reached record levels in the initial quarter of 2022. Average car loan amounts was $39,340 and $308,830 for new and used cars in the first quarter, respectively, as compared with $35,040 or $23,958 during the final quarter of 2021. How much should a vehicle’s down amount be? Experts in finance recommend a down payment of at 20% when financing the purchase of a . This amount is a bit excessive for some, especially in light of the recent spike in used and new automobile prices. For example 20 percent down payment for the equivalent of a $35,000 car is $7,700. Still, there are benefits of putting such an sum down. You can increase the odds of getting approved and qualify for better interest rates. Additionally, your monthly payments will be lower and you’ll pay less interest over the life of the loan. In the event that you’ve got a hefty amount of money saved, putting that amount down could not be a problem. In other cases, it’s not worth emptying your savings account to make an investment. You could also get closer to the suggested 20% down payment. If not, you should aim for 10 percent since this is acceptable to the majority of lenders. and only put down what you are able to comfortably afford. What can I do to purchase a car without a down payment? Some dealers will approve you for financing with a low or no down payment, based on your credit score- but these loans typically come with a higher rate of interest. If you’re lucky enough to be able to get the loan without having to put money down then it might be an unwise choice. You can invest the money to increase your wealth instead of using it for a down amount. These loans generally require excellent credit. However, there’s a major risk to keep in mind. If your car is destroyed and you don’t have , you may have to pay to settle that gap between the amount your insurance company will pay your lender and the amount you are owed. How to determine a downpayment Bankrate’s can help you estimate possible cost savings by putting cash down or trading the vehicle you have. You’ll need the purchase cost, loan term, interest rate, the tax rate (federal and state) as well as the maximum and minimum down payment amounts in order to get started. For example, suppose you’re approved for a 4 year auto loan at 6 percent . You you can put up to the amounts of $2,500 (or 10 %) and the equivalent of $4,000 (or 16.6%) down. This is how you can use the calculator Step 1: Type in $4,000 and $2,500 in the maximum and minimum down boxes for payment. Step 2: Input the purchase price of $25,000 and the loan period of 48 months, and the annual interest of 6 per cent into the boxes marked. Step 3: Enter the amount you believe you could earn on the down payment if you invest it instead. For this example, use 3 percent. Fourth step: enter the state and federal tax rate. Use 7 percent for this situation. Based on these numbers for a monthly payment, the amount with a $2,500 down payment would be $528.41, compared to $493.41 for a $4,000 down payment. By putting more down, you’d save $109.86 per month or $3,773.28 over the life that of the loan. Why a down payment is important Beyond significant cost savings and lower monthly payments, there are other advantages you should consider a down payment: Better loan terms: A higher down payment can get you a loan , typically in the form of an interest rate that is lower. More equity: You’ll start having equity within your vehicle when you make a down payment and you’ll have to pay less than what the car is worth. This cushion prevents you from being and paying the extra amount if you choose to sell your car and trade in the vehicle soon after you’ve taken out the loan. The next steps Even though the average car loan amount is increasing, you’re not entirely out of luck if you aren’t able to pay for it with cash. Aim for a down payment that is at least 10 percent, or work with a lender willing to accept lower amounts if you’re not able to pay the money. Try to bring some of your own assets to discuss. Even a small downpayment could help you get an auto loan with fair terms . It will also minimize the chances of owing more than your vehicle is worth early in the loan term. Make use of our calculator for down payments prior to going car shopping to identify the price points that are compatible with your desired down payment amount. Learn more

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Allison Martin’s writing began over 10 years ago, as a digital content strategist, and since then she’s been published in various top financial media such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain confidence to control their finances through providing concise, well-researched and well-informed information that breaks down complicated subjects into bite-sized pieces.

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