What is the ideal car downpayment?
Quick Answer
It's good practice to make a down payment of at least 20% on a new car (10% for used). A larger down payment can also help you nab a better interest rate. But how much a down payment should be for a car isn't black and white. If you can't afford 10% or 20%, the best down payment is the one you can afford.
A down payment between 10 to 20 percent of the vehicle price is the general recommendation. But if you can afford a larger down payment, you can save even more money on interest payments over the life of the loan.
How much should a car down payment be? Financial experts recommend a down payment of at least 20 percent when financing a new or used vehicle. This amount is steep for many, especially with the recent spike in new and used car prices. For example, a 20 percent down payment on a $40,000 vehicle is $8,000.
In general, you should strive to make a down payment of at least 20% of a new car's purchase price. For used cars, try for at least 10% down. If you can't afford the recommended amount, put down as much as you can without draining your savings or emergency funds.
Typically, mortgage lenders want you to put 20 percent down on a home purchase because it lowers their lending risk. It's also a rule that most programs charge mortgage insurance if you put less than 20 percent down (though some loans avoid this).
It's total loan amount (including interest) divided by the loan term (number of months you have to repay the loan. For example, the total interest for a $30,000, 60-month loan at 7% would be $6,497.40. So the monthly payment would be $608.29 ($30,000 + $6,497.40 ÷ 60 = $552.50).
- Find the right car. Great negotiating starts before you talk numbers. ...
- Do your homework to determine a fair price. ...
- Choose your strategy. ...
- Negotiate more than just price. ...
- Carefully consider add-ons.
Yes, a larger down payment can help you build equity faster, protect you and the lender against depreciation and potential loss, and improve your chances of approval for a loan. It also means you will owe less on the car over time, reducing the risk of owing more than the car is worth (being "upside down" on the loan).
| Total Loan Amount | $40,000.00 |
|---|---|
| Upfront Payment | $16,425.00 |
| Total of 60 Loan Payments | $45,290.96 |
| Total Loan Interest | $5,290.96 |
| Total Cost (price, interest, tax, fees) | $61,715.96 |
How much car can I afford based on salary?
A good rule of thumb is to spend no more than 10% to 15% of your monthly take-home pay on transportation costs, including a car payment, gas, insurance and repairs. When it's time to buy a new car, you may be unsure exactly what your budget can handle—especially if you haven't had a car payment in a while.
Cash, personal checks, debit cards, credit cards, and trade-ins are all acceptable forms of a down payment for a car. Most dealerships will work with you to get a down payment that works for your budget.
The average car payment for a new vehicle is $742 monthly, according to Q4 2024 Experian data — down 0.1% year over year. Used cars have an average monthly payment of $525, down 1.9% over the same period. Meanwhile, new lease payments average $600, a 1.6% year-over-year decrease.
Q: How much is a car payment on a $35,000 car? A: Assuming a 3.5% APR and 60-month term, it would be about $545 monthly.
Down payments reduce the amount of money you must borrow and, thus, the interest you pay while repaying your car loan. Experts recommend a down payment of at least 20 percent. Larger down payments may prevent you from becoming upside-down on your loan.
Typically, a 20% down payment is recommended to reduce monthly payments and lower interest rates. While it's possible to buy a car without a down payment, you could face higher interest rates and less favorable loan conditions.
Strive for a car payment that does not exceed 15 percent of your net or take-home income. If you think your current car payment is too high, contact your lender to discuss your options or consider trading your vehicle in for something more affordable.
Paying cash for your car may be your best option if the interest rate you earn on your savings is lower than the after-tax cost of borrowing. However, keep in mind that while you do free up your monthly budget by eliminating a car payment, you may also have depleted your emergency savings to do so.
Key takeaways. You don't need to put 20 percent down to get a mortgage, and some mortgages don't even require a down payment. You can get a conventional mortgage with 3 percent down, but with anything less than 20 percent, you'll have to pay mortgage insurance.
- Shop around for a loan that doesn't require PMI. ...
- Check out state and local homebuyer assistance programs. ...
- Look for an 80-10-10 loan. ...
- Pay a higher interest rate. ...
- Buy a less expensive home.
Is 50% down payment good for a car?
Not only does this show lenders how dedicated and serious you are to pay back the loan, investing some of your own cash into this purchase motivates success. You'll really see changes for the financial better in your car loan when you make a really large down payment, about 50%.
| Credit score | Average APR, new car | Average APR, used car |
|---|---|---|
| Superprime: 781-850. | 4.77%. | 7.67%. |
| Prime: 661-780. | 6.40%. | 9.95%. |
| Nonprime: 601-660. | 9.59%. | 14.46%. |
| Subprime: 501-600. | 13.08%. | 19.38%. |
If your gross salary is $60,000, your take-home monthly pay is probably around $3750, assuming about 25 percent of your pay goes toward taxes and other expenses. Based on a calculation of spending 10–15 percent of your monthly pay on a car loan, you should spend no more than $562.50 on your monthly car payment.
An increase in your monthly payment will reduce the amount of interest charges you will pay over the repayment period and may even shorten the number of months it will take to pay off the loan.
The Best Months: September, October, and December
Timing your car purchase to the right month can lead to significant savings: September and October: These months are when dealerships start receiving new models for the upcoming year.
